Preamble

The House met at half-past Two
o"clock

PRAYERS

[Mr. SPEAKER in the
Chair]

PRIVATE BUSINESS

GREATER LONDON COUNCIL (GENERAL POWERS) BILL

Read the Third time and passed.

BARCLAYS BANK D.C.O. BILL [Lords]

WALTON AND WEYBRIDGE URBAN DISTRICT COUNCIL BILL [Lords]

Read the Third time and passed, without
Amendment.

SAINT MARK, CAMBERWELL BILL

As amended, considered; to be read the Third
time.

MANCHESTER CORPORATION BILL (By Order)

Second Reading deferred till Tuesday
next.

Oral Answers to Questions — COAL

Coal Industry (Policy)

Mr. Eldon Griffiths: asked the Minister of Power what is his policy on the protection of home producers of coal against imported oil.

Mr. Peyton: asked the Minister of Power when he will make a statement on the detailed provisions of his national fuel policy.

Mr. Palmer: asked the Minister of Power if he will introduce legislation to reduce the burden of interest charges carried directly by the National Coal Board, in order to assist the development of a realistic general fuel and power price structure.

Mr. McGuire: asked the Minister of Power what steps he has taken, following Her Majesty's Government's study of methods to assist the industry, in maintaining the present size of the coal industry.

Mr. William Hamilton: asked the Minister of Power if he will make a further statement on the progress he is making towards capital reconstruction of the finances of the National Coal Board.

Mr. Geoffrey Lloyd: asked the Minister of Power if he will now make a statement setting out his national fuel policy.

Mr. McGuire: asked the Minister of Power what steps he proposes to take to reduce net imports of fuel oil and gas oil from refineries abroad by encouraging greater use of home-produced coal.

The Minister of Power (Mr. Frederick Lee): I am proposing to make a statement in the next few clays on the steps I am taking to assist the coal industry in the short term. As to the longer term, I would ask my hon. Friends and the hon. Members to await the outcome of the review of fuel policy I have in hand.

Mr. Griffiths: In view of the Minister's intended statement in a few days" time, will he bear in mind that, while it is appreciated that Lord Robens wishes to spread his costs over as large a production as possible, there is nothing sacrosanct about the figure of 200 million tons of coal if the country cannot use it? In making his statement, will he bear in mind the need of British industry for the cheapest possible fuel from wherever it is bought?

Mr. Lee: Those points were covered in my answer to my hon. Friend the Member for Don Valley (Mr. Kelley) on 9th February.

Mr. Peyton: The right hon. Gentleman will be aware that we are all very glad that his coyness on this subject is coming to an end. Can he give us some assurance that his statement will be made in the House and that it will be a comprehensive statement on all aspects of fuel policy?

Mr. Lee: I am glad that the hon. Gentleman should have noticed my naturally coy disposition. I said that the


statement on coal which I would make in a few days would be essentially a short-term statement. I cannot anticipate the date of the longer-term statement.

Mr. Palmer: Will my right hon. Friend bear in mind that the unfair and arbitrary burden of interest charges as between the fuel industries makes a proper comparison of the fuel industries impossible?

Mr. Lee: Yes, and I have said that we are looking at that matter as it affects the coal industry.

Mr. McGuire: Will my right hon. Friend bear in mind that the coal industry has done great service to this country, and particularly to industrialists, and was the only industry which about the time of the last Budget provided cheap fuel for the steel industry? Will he also bear in mind that what the people of this country and especially the miners are looking for is not a politician's answer but a statesman' answer, and will he also bear in mind—

Mr. Speaker: Order. I think the Minister had better give his statesman's answer as far as we have got.

Mr. Lee: The most statesmanlike reply I can give is that not only has the coal industry served the nation very well in the past, but that it will continue to do so in future.

Mr. Geoffrey Lloyd: Has the right hon. Gentleman decided, like the First Secretary of State with his national plan, to keep his long-term fuel policy secret from the public and to release only selected bits of it when it suits him?

Mr. Lee: The long-term policy which I am working on is to be incorporated in the national plan.
Later—

Mr. William Hamilton: On a point of order, may I have an answer to Question No. 30?

Mr. Speaker: It was answered with Question No. 1, possibly in the possible absence of the hon. Member.

Mr. Hamilton: But there is no conceivable connection between Question No.1 and this Question.

Mr. Speaker: That may well be, but it is not a proposition on which I can become involved in argument. It was so answered.

Smokeless Zones (Ilford)

Mr. Iremonger: asked the Minister of Power what smokeless zones are now in operation in the Ilford area; and what information he has about the sufficiency of fuel supplies.

The Parliamentary Secretary to the Ministry of Power (Mr. John Morris): My right hon. Friend the Minister of Housing and Local Government informs me that five smoke control orders are now in operation in the Ilford area and a further order will be operative from August this year. Smokeless fuels generally are, and should continue to be, in good supply in the area.

Prices

Mr. J. E. B. Hill: asked the Minister of Power what consultations he had with the National Coal Board on the fixing of zone-delivered prices of rail-and road-borne domestic coal.

Mr. John Morris: The National Coal Board consults my right hon. Friend as a matter of course on any proposal to change the general level of coal prices.

Mr. Hill: Is the Minister aware that the National Coal Board spread the recent 4 per cent. increase in rail freight increases for coal over road-borne as well as rail-borne supplies, with the result of concealing the true cost of relative systems of delivery? Is not this a bad case of two nationalised industries suppressing the results of competition from private enterprise?

Mr. Morris: I cannot accept any of the remarks made by the hon. Member. I understand that there have been changes in the freight costs, but the hon. Member must remember that the pithead element of the price of coal has been largely stable since May, 1962.

Parliamentary Questions

Mr. Shinwell: asked the Minister of Power to what extent he is prepared to exercise his statutory power of requiring information from the National Coal Board so as to give information in answer


to Parliamentary Questions on pit closures and the numbers being made redundant as a consequence.

Mr. Urwin: asked the Minister of Power to what extent he is prepared to alter his practice so as to exercise his statutory power to require information from nationalised industries so as to give information in answer to Parliamentary Questions on the administration and policies of those industries.

Mr. Frederick Lee: I have no present intention of departing from previous practice in this respect.

Mr. Shinwell: Is not my right hon. Friend aware that under the Act he is empowered to direct the Board on matters of general policy? Is not this matter of closure of pits one not only of general, but of national, policy? What is the sense of referring hon. Members to the National Coal Board in matters of this kind when we receive only stereotyped and valueless replies?

Mr. Lee: I am answering according to the rules which the House has laid down and the arrangements, which will continue to be operated, as announced in the House on 31st July, 1963, by the then Chancellor of the Duchy of Lancaster about answering Questions seeking statistical information on a national basis about a nationalised industry.

Mr. Urwin: Will my right hon. Friend bear in mind the fact that there appears to have grown up in the last two years a kind of restrictive practice with regard to a answering questions on the policy of the nationalised industries? Will he also take note of the fact that when I tried to put down a simple Question on the provision of a coal-fired power station in the County of Durham I was advised that it was not in order? It appears to be the case that in the past Ministers have been sheltered from hon. Members" questions.

Mr. Lee: This is not a question for my Ministry but a matter of the way in which the House decided, in years gone by, how we should answer Questions on the nationalised industries. I am not trying to reduce the extent of that obligation. I am merely conforming to the previous procedure.

Mr. Shinwell: My right hon. Friend is placing far too rigid an interpretation on

what was declared then. When I was Minister of Fuel and Power, I was responsible for this Act going through the House, and I answered Questions on matters of this sort.

Mr. Lee: There is not the slightest effort on the part of my Ministry to reduce the number of Questions we answer. We are simply carrying out the procedure which the House has accepted for many years.

Exports

Sir C. Osborne: asked the Minister of Power, in view of the fact that Polish coal is being sold abroad at prices that do not cover the freight from pit to port, if his consent was given to the National Coal Board's contract to Italy for one million tons of coking coal; to what extent it is subsidised; on what terms it will be sold; and if he will make a statement.

Mr. Frederick Lee: The export of coal is a commercial matter for the National Coal Board. The terms of sale are a matter for settlement between buyer and seller. There is no question of a subsidy from Her Majesty's Government.

Sir C. Osborne: In view of the fact that Polish coal is being sold in Europe at less than the cost of transport from the pithead to the port of reception, how can British coal be sold in Europe without a subsidy? Will the Minister say how much subsidy this contract has involved?

Mr. Lee: I have replied that there is no question of a subsidy from Her Majesty's Government.

Absenteeism

Mr. Box: asked the Minister of Power if he will give a general direction, in the public interest, to the National Coal Board to hold an inquiry into the increase of absenteeism in the industry.

Mr. John Morris: No, Sir.

Mr. Box: Is the hon. Member not aware of the alarming increase in absenteeism that is taking place in the coal industry at present? Is he aware that it now amounts to 20 per cent. and is adding up to 10s. a ton to the price of coal? Is not he further aware that it is acknowledged throughout the industry that a good deal of the


sickness and injury claims are false? Will he assure us that no regard will be paid to claims made upon the coal industry for increased wages and salaries until the National Union of Mineworkers has put its house in order?

Mr. Morris: The problem of absenteeism is a matter of day-to-day judgment for the Board.

Mr. McGuire: Does my hon. Friend realise that the mineworkers would not mind his publishing figures in respect of absenteeism if similar figures were published in respect of every other industry? What the miners are fed up to the back teeth with is dogs barking before they are hurt.—[Interruption.] This is short and sweet. If my hon. Friend publishes these figures will he also see that figures concerning industrialists and bosses in other industries are published?

Mr. Speaker: There are quite a few industrialists and quite a few bosses outside the industry with which this Question deals.

Oral Answers to Questions — MINISTRY OF POWER

Earthing Systems (Plastic Water Pipes)

Mr. Bessell: asked the Minister of Power whether he will give a general direction, in the public interest, to the electricity boards to provide proper earthing systems at no charge to the consumer in cases where earthing to metallic water pipes has become ineffective as a result of the introduction of plastic pipes.

Mr. John Morris: No, Sir. The boards have undertaken to warn consumers where they are aware that earthing may have become impaired, and are prepared to give them any necessary help in putting it right. In many cases they will do this tree of charge, but they must reserve the right to make a charge where circumstances justify this.

Mr. Bessell: I thank the hon. Gentleman for that reply. Is he aware that there have already been a number of serious accidents as a result of the change from metal pipes to plastic pipes? Is he aware that cases of hardship have arisen where people on a limited income are unable

to afford to make the necessary alterations or to permit the electricity board to do this on their behalf? There is a considerable public danger, and this is a matter which requires urgent attention.

Mr. Morris: Whether the boards make a charge must be left to their discretion and commercial judgment, and as the circumstances of individual cases vary it would be inappropriate to make a general direction. However, if the hon. Gentleman has any example of difficulty in mind, I certainly undertake to consider it.

Nuclear Power Programme

Mr. Wingfield Digby: asked the Minister of Power what decision has been reached about the second nuclear power programme.

Mr. Peyton: asked the Minister of Power if he will make a statement on future developments of nuclear power in the electricity supply industry.

Mr. Frederick Lee: I have nothing to add to the replies I gave my hon. Friend the Member for Bristol, Central (Mr. Palmer) on 1st December and to the hon. Member for Cirencester and Tewkesbury (Mr. Ridley) on 26th February.

Mr. Digby: When will the Government reach a decision about this, and what is the reason for the delay? Is it because of the high capital expenditure involved, or because the Government cannot make up their mind between the different reactor systems involved?

Mr. Lee: It is not a bad idea for the Government to wait until they have received the views of the A.E.A. and other interested parties. We have not yet reached that point. The tenders must go through a meticulous and detailed examination. However, as I have told the House before, the moment we make a decision we will advise the House on it.

Mr. Peyton: But does not the Minister recall that he promised the House a statement in February? We have now gone past February. Will he bear in mind that it is urgent that a decision should be made in this very important matter as soon as possible?

Mr. Lee: I think that the hon. Gentleman is confusing two or three things. What I said was that the tenders were received on 1st February. I have certainly never said to the House that we could give a decision in February. This is a long and complicated process. I repeat that I will make a statement as soon as possible.

Mr. Maxwell: Will my right hon. Friend bear in mind that, because the former Administration hurried their decision on nuclear power, they wasted several hundred million pounds of the nation"s money and that we would be best off if he took his time on this issue?

Fuel Industries (Capital Expenditure)

Mr. Ridsdale: asked the Minister of Power what he estimates will be the capital requirements of the coal, gas and electrical industries over the next five years.

Mr. Frederick Lee: Estimates of the industries" capital expenditure in 1965–66 are given in the White Paper, Loans from the Consolidated Fund, 1956–66. I am not in a position to give figures for any later year. My Department is currently engaged in its yearly examination of the industries' programmes with a view to determining the industries' capital allocations for 1966–67 and to settling provisional allocations for 1967–68.

Mr. Ridsdale: Is it fair for these capital requirements to be met out of current charges? Cannot they be met by loans to which the public have subscribed and possibly tax free?

Mr. Lee: I should have thought that the Government of which the hon. Gentleman was a member had a lot to do with the present system. At present I have no intention of changing it.

Electricity Boards (Manufactures)

Mr. Palmer: asked the Minister of Power if he will seek to amend the Electricity Act, 1957, so as to restore to the electricity boards, and particularly to the Central Electricity Generating Board, the right to manufacture plant and equipment.

Mr. John Morris: Yes, Sir, as an opportunity arises.

Mr. Palmer: Will my hon. Friend bear in mind that this was a very valuable reserve power for the supply authorities and that it greatly assisted them in their contractual dealings with the manufacturers?

Mr. Morris: I appreciate that.

Mr. Ridley: Can the hon. Gentleman say whether he has had any request from the electricity industry for the restoration of such powers? Will he change his mind in view of the very strong arguments against the proposals of his hon. Friend?

Mr. Morris: The powers in the 1947 Act were never used, and we have not yet received any request from the boards to restore them. These are very important reserve powers and we have undertaken to introduce legislation, when such legislation is required, to remove the statutory limits which impede the nationalised industries.

Southern Electricity Board

Mr. Evelyn King: asked the Minister of Power what gross profit was earned by the Southern Electricity Board in the year ended 31st March, 1964; and what is the estimated additional revenue likely to be obtained by recently announced increased charges to consumers.

Mr. Frederick Lee: The board's accounts published for the year ended 31st March, 1964, showed a trading surplus of just over £8 million (after depreciation but before interest). On the second part of the Question, I am asking the chairman to write to the hon. Member.

Mr. King: Is it not clear that the figures which the Minister has given for these additional charges imposed on my hard-hit constituents—and they will be harder hit before the afternoon is out —are quite unnecessary?

Mr. Lee: The Board considered that a price increase was needed to meet increases in costs, bulk supply tariffs, wages, and so on.

North Sea Drilling Operations

Mr. Hector Hughes: asked the Minister of Power, in view of the fact that the project to drill for oil and gas in the North Sea, which is not private


property, was granted under licence from the British Government to certain companies instead of being undertaken by Her Majesty's Government, if he will now take steps to rectify this by taking over the control and management of this project.

Mr. Frederick Lee: As I informed the House on 1st December, 1964, the Government have concluded that it would not be in the public interest to disturb the production licences issued last year. It would be inconsistent with that decision to take the action proposed by my hon. Friend.

Mr. Hughes: My right hon. Friend has mentioned public rights. Does he realise that these licences, granted by a previous Government, gave away British national rights? Will he take steps to ensure that they are exploited by and for the British nation and not for private profit?

Mr. Lee: My hon. and learned Friend will know from his legal knowledge that the licences to which he refers are legally binding contracts on the basis of which licensees have already committed themselves to pretty substantial expenditure, much of which will benefit development districts.

Mr. Geoffrey Lloyd: Is not that a rather unsympathetic reply to the hon. and learned Member for Aberdeen, North (Mr. Hector Hughes) since he is merely repeating speeches made by members of the Government during the General Election?

Mr. Hugh D. Brown: I apologise if I missed part of my right hon. Friend"s reply because of the noise in the House. Is he aware of a recent "Panorama" programme which spotlighted the inefficiencies and wastefulness of private enterprise to the extent that the first concessionaire is not able to make knowledge available to other concessionaires? Would my right hon. Friend have a look at this aspect of the matter with a view to ensuring that the knowledge is made available to many concessionaires in the public interest?

Mr. Lee: I believe that the people who have the licences are pretty knowledgeable in looking for oil and gas. I certainly note the point which my hon. Friend makes about the inefficiency of private enterprise.

Mr. Costain: Does the Minister agree that the expenditure is something like £80-£150 million, and would it not be better to allow this to be done by experts and not by amateurs?

Mr. Peyton: In view of the Minister's quite gratuitous remark about the inefficiency of private enterprise, will he kindly tell the House whom he has in mind to carry on these operations in the North Sea? Would it not be altogether more seemly if the Minister conducted himself with some appreciation?

Mr. Lee: I am sorry that the hon. Member is getting perturbed. My hon. Friend mentioned the inadequacies of private enterprise. I should have thought that since the party opposite kept 10 per cent. of our economy nationalised when they were in power, they recognised that private enterprise should be kept out of some industries.

Eastern Electricity Area

Mr. Allason: asked the Minister of Power what estimate he made, when agreeing to the new electricity charge increases in the eastern electricity area, of the resulting increase in production costs of industry.

Mr. John Morris: It is not practicable to make an estimate for a particular area, but for most industries the increase in production costs is likely to be very small.

Mr. Allason: Is the hon. Gentleman aware that increases in costs of electricity are up to 7 per cent.? As the Government urge private industry to absorb these increases itself, will they not urge the electricity industry also to absorb its own price increases?

Mr. Morris: The electricity industry has certainly done what it can to absorb its increased costs. This matter must be kept in proper perspective. If the Eastern Electricity Board's area were typical of the United Kingdom, the tariff increase would raise industrial costs by only one-tenth of 1 per cent.

Mr. Wilkins: Would not the Minister agree that the eastern and south-western electricity areas are the most difficult in the country to operate? Does he not consider that the time has come when


we should have a standardised tariff throughout the country, which we were talking about in this House ten years ago?

Mr. Morris: Conditions vary from area to area. On the question of standardised tariffs, perhaps the hon. Member will put down a Question.

Industrial Exhibitions

Mr. Box: asked the Minister of Power whether he will issue general directions, in the national interest, to the National Coal Board, Wales Gas Board, and the Welsh Electricity Board instructing them to increase their participation it industrial exhibitions.

Mr. John Morris: No. Sir.

Mr. Box: Is the hon. Gentleman aware that none of these nationalised industries is participating in the important industrial exhibition of Wales which is due to take place next month? Is he further aware that over 1,000 overseas visitors have been invited to this exhibition, which is the largest of its kind to originate in the Principality? Will not the Minister reconsider from a prestige point of view, both of the country and of the industries, whether something cannot be done for these nationalised industries to participate in this important exhibition?

Mr. Morris: This is a matter which is best left to the commercial judgment of the Boards on the spot. I notice that the hon. Member shakes his head. A few years ago he made allegations in this House of extravagance and waste by the National Coal Board in Wales, but a year later he admitted that they no longer applied.

Contractors (Employees' Wages)

Mr. Alison: asked the Minister of Power if he will issue a general direction to the Central Electricity Generating Board requiring that they only employ contractors for new power stations who pay their work-force at rates which, including overtime, are broadly in line with average earnings in the locality.

Mr. John Morris: No, Sir. The Board's contracts incorporate the normal

fair wages clause in respect of minimum wages, hours and conditions and the question of actual wage rates is one for the contractors themselves and their employees.

Mr. Alison: Is the Minister aware that in disavowing responsibility in this field he has disavowed the Government's income policy in terms? Is he aware that there is an auction for local labour in the Selby area because of the construction of the Eggborough power station and that the Minister's agents are the highest bidders? Would he take steps to see that rates are kept in line with local earnings?

Mr. Morris: This is a matter for the Central Electricity Generating Board, which incorporates a fair wages clause in its contracts. It would be impracticable and contrary to normal practice in industry for the Board to go further and attempt to control the rates paid by contractors.

Fuel Policy

Mr. Patrick Jenkin: asked the Minister of Power upon what estimates of the domestic consumption of solid fuel for each of the 10 years 1965 to 1975 his national fuel policy is based.

Mr. Frederick Lee: The future trend of domestic and other demand for solid fuel is one of the matters which I am examining in the course of my review of fuel policy.

Mr. Jenkin: Does the Minister agree that the reduction in domestic consumption last year was of the order of 10 per cent. and is likely to continue? Will he give an undertaking in his national fuel policy that there will be no attempt at direction of domestic consumers as to which fuel they are to buy?

Mr. Lee: I have no intention of trying to direct anybody about anything.

Electricity (Research Expenditure)

Mr. Wingfield Digby: asked the Minister of Power the total public expenditure on research for the electricity industry in 1964; and how much of this was undertaken by the Central Electricity Generating Board and how much by other public corporations.

Mr. John Morris: Total research expenditure by the Electricity Council and boards in 1964–65 was about £7 million, of which over £6 million was by the Central Electricity Generating Board. The Atomic Energy Authority estimates that its expenditure in 1964 on developing various reactor systems for power generation was about £18 million. Expenditure by other bodies, such as the Department of Scientific and Industrial Research and the National Coal Board, on research of interest to the electricity industry amounted to about £½ million.

Mr. Digby: Is the Parliamentary Secretary satisfied that there is no undue overlapping between the Atomic Energy Authority and the Board?

Mr. Morris: I am satisfied that no promising research project is being neglected. If there is any overlapping, perhaps the hon. Member will bring it to my attention.

Electricity Charges

Mr. Patrick Jenkin: asked the Minister of Power if he is aware that the pricing policy of the Central Electricity Generating Board discriminates unfairly against large industrial users of electricity; what, in considering future proposals for increased charges, will be his policy in regard to this; and if he will make a statement.

Mr. John Morris: My right hon. Friend has no evidence of discrimination. Consumers who consider that there is such discrimination in the pricing policies of the electricity boards may make representations to the electricity consultative council for their area.

Mr. Jenkin: While thanking the hon. Gentleman for his reply, may I ask whether he does not recognise that cheap energy is the basis of industrial efficiency and that the costs of electricity to large users are substantially higher than the costs of their principal competitors abroad?

Mr. Morris: I certainly accept the importance of cheap electricity.

Smokeless Fuels

Mr. J. H. Osborn: asked the Minister of Power what are the stocks of smokeless and premium fuels in the country

at the present time; and how these figures compare with three months and six months ago.

Mr. John Morris: Stocks of solid smokeless fuels held by producers and merchants were 3·9 million tons at end February, against 4·9 million tons three months earlier and 4·6 million tons six months earlier.

Mr. Osborn: Is the hon. Gentleman satisfied with the stocks at the present time? Is he satisfied with the rate of increase in production planned two years ago, and what steps is he taking to advise the Minister of Housing and Local Government to accelerate smoke control areas?

Mr. Morris: On the first part of the question, stocks of solid smokeless fuels have been adequate this year. The question of smokeless fuel areas is a matter for my right hon. Friend the Minister of Housing and Local Government.

Mr. H. Hynd: Can my hon. Friend assure us that next winter there will be an adequate supply in the respective areas; in other words, that the distribution will be satisfactory, because of the fact that smokeless zones are not evenly spread throughout the country?

Mr. Morris: A few months ago I made a full statement on this matter to the Clean Air Council. Before a local authority applies for a smoke control order, it should satisfy itself about the prospective availability of smokeless fuel supplies in its area, and the Minister of Housing and Local Government must give approval to the scheme.

Heating Appliances (Costs)

Mr. J. H. Osborn: asked the Minister of Power what information he has obtained, in his review of national fuel resources, on the capital and operational costs of various methods of heating municipal housing estates and other developments; and what information he has about the use of natural gas, town gas, oil and solid fuel heating for this purpose.

Mr. John Morris: These costs vary greatly from area to area and according to the type of heating required. On the second part of the question, I understand that for local authority dwellings


approved in 1964 by the Ministry of Housing and Local Government, the main space heating appliances were in 43 per cent. for solid fuel, 27 per cent. electricity, 24 per cent. town gas and per cent. oil.

Mr. Osborn: Is the hon. Gentleman aware that in my constituency the hospital has decided to use oil-fired heating? Will he undertake not to press for a change in that decision, as it will delay the hospital? Is he aware that there is a housing estate on the verge of my constituency which still has to make a decision, and will he advocate economic and not political considerations as being the main factor?

Mr. Morris: The issue of the hospital is a matter for my right hon. Friend the Minister of Health. With regard to the housing scheme, I understand that Sheffield Council has not yet made its decision.

Mr. Varley: Would not my hon. Friend agree that when municipal housing authorities are making decisions about heating schemes, they should consider not only the question of efficiency, but the political instability of the oil producing countries concerned?

Mr. Morris: It is for local authorities to choose the type or types of fuel for use on their housing estates. They are best able to judge what meets their needs.

Mr. Lubbock: Is the hon. Gentleman aware that outside Stockholm there is a suburb inhabited by 30,000 people, which is heated by a district heating system powered by nuclear power? In view of Britain"s pre-eminence in the generation of power by nuclear means, does not the hon. Gentleman think that it would be worth while his Department investigating this matter with respect to large-scale units for housing schemes?

Mr. Morris: So far as that Question concerns my Department, I will look at it; so far as it concerns my right hon. Friend the Minister of Housing and Local Government, I will draw his attention to it.

Steel Industry

Mr. Ridley: asked the Minister of Power what figures he has received from the Iron and Steel Board with regard

to the net earnings of foreign exchange of the steel industry in the five years 1955 to 1959 and the five years 1960 to 1964, respectively; and if he will publish them.

Mr. Frederick Lee: I am publishing in the OFFICIAL REPORT a table setting out the information which the Iron and Steel Board has been able to supply about the import and export of iron and steel products, and the import of raw materials used in the manufacture of iron and steel.

Mr. Ridley: Is the right hon. Gentleman aware that in the first five years the balance was £78 million and that in the second five years it was £271 million? In view of this very satisfactory export performance, in increasingly competitive conditions, will the right hon. Gentleman cease to denigrate the export performance of the steel industry?

Mr. Lee: I am grateful to the hon. Gentleman for the answer that he has given to his own question. There can be no possible doubt that imports costing many hundreds of millions of pounds had to be brought in before 1961 because of the lack of capacity in the United Kingdom steel industry. Indeed, the Iron and Steel Board said in its development report of 1964:
In view of the dependence of the British economy on exports, it is vitally important that the industry should succeed in achieving a greater volume of exports.

Mr. Maxwell: Will my right hon. Friend also publish the facts showing that the steel industries of the Common Market countries, the United States, and Japan, have increased their exports far more substantially than private industry steel has done in this country?

Hon. Members: They are all privately owned.

Mr. Lee: It is the case at the moment that exports throughout the world are increasing and that our exports have increased, but I do not believe that any increase has taken place in our share of world markets.

Mr. Ridley: Would the right hon. Gentleman admit that as the steel industry has recovered from nationalisation it has become a very large earner of foreign exchange?

Mr. Lee: I think the fact that the steel industry was wantonly denationalised stopped it from making a far better performance than it might have done.

The following is the table:


£ million


Period
f.o.b. value of exports* of iron and steel
products
c.i.f. value of imports†of raw materials
c.i.f. value of imports of finished iron and steel products by consumers


1955–59
…
897·1
650·0
204·8


1960–64
…
993·0
580·3
201·1


* Including exports of pig-iron, blast furnace ferro-alloys and iron ore, in addition to iron and steel products; but excluding exports of goods manufactured from steel.


† Including imports of pig-iron, ferro-alloys, scrap, ore, and semi-finished steel products; but excluding imports of refractories, fuel oil and coating materials.

Non-noxious Gas

Mr. Dempsey: asked the Minister of Power if, in view of the number of fatal accidents occurring due to gas leaks, he will state what information he received, in agreeing the general programme of the Scottish Gas Board, as to when non-noxious gas will be supplied.

Mr. John Morris: The development programme of the Scottish Gas Board provides for the reduction of the carbon monoxide content of gas sent out to 5 per cent. in the next four or five years.

Mr. Dempsey: But is my hon. Friend aware that Scottish public opinion is disturbed at the ever-increasing number of tragedies due to gas leaks in general? Will he bear in mind that these unfortunate fatal accidents are occurring among the oldest and youngest sections of the community? Can he say that by a prescribed date we will be able to enjoy the service of non-toxic gas which will eliminate such accidents?

Mr. Morris: The figures for Scotland show that the number of deaths from carbon monoxide poisoning has fallen substantially during the last two years. As regards the old people, other measures taken by the Board to prevent gas poisoning accidents include the supply

of special cookers for handicapped people and regular inspection of appliances in the homes of old and handicapped persons.

Dr. Miller: Is my hon. Friend satisfied that the de-toxicated gas has been rendered as innocuous as it can be? Does not he agree that it still contains too high a proportion of carbon monoxide for safety?

Mr. Morris: With respect to my hon. Friend, I must point out to him that there have been substantial advances in this field in recent years, and that an average figure of 5 per cent. carbon monoxide content should be reached in Scotland within two or three years.

Mr. Edward M. Taylor: Does the hon. Gentleman agree that much of the difficulty arises in connection with old property? Does he further agree that the position might be improved if there could be a regular inspection of gas supplies to older buildings?

Mr. Morris: I have said that the boards give every possible assistance to handicapped and old people.

Electric Cables (Installation Payment)

Sir R. Russell: asked the Minister of Power if he will give a general direction, in the public interest, to the electricity boards not to require the total payment by private firms for the installation of electric cables to be made before arrangements to start the work have been settled, in view of the fact that this is not normal commercial practice; and if he will make a statement.

Mr. John Morris: No, Sir.

Sir R. Russell: Can the hon. Gentleman say why a consumer who is going to increase his consumption of current should be treated like this by a public monopoly? Is this not another example, like the Budget, of people having to pay for Socialism before they get it?

Mr. Morris: This is a matter that is best left to the commercial judgment of the boards. [HON. MEMBERS: "Why?"] Hon. Members ask "Why?". It is in the public interest that the


boards should economise on their working capital by keeping down the amount of debt accruing to them, and asking the consumer to pay a contribution in advance helps to avoid subsequent disputes and possible losses. The consumer's contribution is usually small compared with the total cost borne by the boards.

Mr. Palmer: Can my hon. Friend confirm that this was the normal practice in the electricity supply industry long before nationalisation?

Mr. Morris: Authority for this dates back to the Electric Lighting (Clauses) Act, 1899.

Mr. Tinn: Is my hon. Friend aware that in my constituency of Cleveland his officials have shown great consideration in meeting the needs of industry in this respect?

Mr. Morris: I thank my hon. Friend.

PRIME MINISTER (PARIS VISIT)

Mr. Kershaw: asked the Prime Minister whether he will make a statement about his visit to the President of France.

Mr. Gordon Campbell: asked the Prime Minister if he will make a statement on his recent visit to Paris.

Mr. Bruce-Gardyne: asked the Prime Minister what consultations he had with President de Gaulle during his recent visit to Paris on Anglo-French co-operation in the field of nuclear weapons.

Mr. Chataway: asked the Prime Minister what discussions he has had with the President of France about Anglo-French co-operation in the provision of a European nuclear deterrent.

Mr. Jackson: asked the Prime Minister whether he will make a statement on the talks that he held with President de Gaulle, during his recent visits to Paris.

Mr. Bruce-Gardyne: asked the Prime Minister what consultations he had with President de Gaulle during his recent visit to Paris regarding the activation of

the general agreement to borrow and the reform of the international liquidity system.

The Prime Minister (Mr. Harold Wilson): I would refer hon. Members to the communiqué issued after the talks which my right hon. Friend the Foreign Secretary and I had in Paris. With permission, I will circulate it in the OFFICIAL REPORT. There were no discussions about Anglo-French co-operation in the production of nuclear weapons.

Mr. Kershaw: Is the Prime Minister aware that the House will greatly appreciate his courtesy in coming here in spite of the fact that he appears to have caught a very bad cold in Paris? If he is going to go home to bed and not hear the Budget Speech, he will have the envy as well as the sympathy of a great many hon. Members. About his visit to France: does not he agree that it is important that we should not fritter away, one by one, matters which, if taken all together, could provide a solid basis for an advance towards a united Europe?

The Prime Minister: I much appreciate the hon. Member"s sympathy. He can show it in a practical way by giving me a pair, which I have not been able to get for the last half hour, and since he has made it clear that he does not want to hear the Budget Speech, which I do. I am not sure what he, meant by talking about "frittering away".

Mr. Kershaw: To the extent that a number of bilateral arrangements will be made now and then with different countries, without an overall plan for an approach by this country to Europe and by Europe to this country, it appears that one may sometimes sacrifice that overall approach to individual negotiations from time to time.

The Prime Minister: I do not think that there is any question of that; indeed the negotiations with France were very much related to the negotiations that we are having with other countries.

Mr. Gordon Campbell: The communiqué refers to the possibility of more fruitful relations between the E.F.T.A. countries and the E.E.C. countries. Can the Prime Minister say whether the possibility of direct talks between these two groups was discussed?

The Prime Minister: As in the recent talks in Bonn, I made it clear that until we had had discussions with our E.F.T.A. partners—and since our European partners, whether in Germany or France, would wish to have talks with their E.E.C. partners—it was not possible to speak on behalf of the group of which one is a member. These talks provided an opportunity for trying out one or two ideas, and the next step now lies with each of us talking, in E.F.T.A. and E.E.C., to see if we can come to some working arrangement.

Mr. Jackson: Does not my right hon. Friend agree that the reason for the great success of his visit, upon which we congratulate him, was his essentially pragmatic approach to each individual problem of Anglo-French relations, in strong contrast to the policy of sulk and silence of the last two years of Tory Government?

The Prime Minister: In this kind of negotiation, particularly the one we had last week, where, as the whole House knows, there were fundamental differences of approach to a number of vitally important questions, one can get the sort of results one hopes for only by being absolutely frank about the things on which there is disagreement and by not fluffing over them in woolly communiqués, and then concentrating on those issues where we can agree and do something constructive.

Sir Alec Douglas-Home: We had better not go into comparisons—[HON. MEMBERS: "Why not?"] We should have to take into account the Concord, and other matters. I want to ask the Prime Minister rather a different question, which arises obliquely out of this but which is nevertheless important. The right hon. Gentleman discussed the question of the reunification of Germany. He will know, as we all do today, that a serious situation may possibly arise in Berlin. Will he keep the House informed in the next day or two about that?

The Prime Minister: Yes, certainly. I did not myself enter into any comparison with the past in this matter, though I am bound to say to the right hon. Gentleman that he may or may not be disappointed that his warnings about Anglo-French relations in connection

with the Concord story do not seem to have reached General de Gaulle.

Sir Alec Douglas-Home: Did the right hon. Gentleman refer to Berlin?

The Prime Minister: Yes. I am sorry that my voice is not strong.

Mr. Grimond: From the statement today and the communiqué it appears that there was no discussion on Britain entering the Common Market. May I ask the Prime Minister whether that is correct? Would he make clear that the type of Europe we have in mind is not a Gaullist Europe?

The Prime Minister: So far as the further development of the Community is concerned, I did hear in some detail President de Gaulle's views on how he thought that could develop. I do not think anyone thinks that there is any immediate practical possibility of entering into the Common Market. That is not on in present circumstances, as right hon. Gentlemen on both sides of the House have made clear. What we did want to do was to minimise the danger of division of Europe and the growth of high tariff walls affecting the movement of goods and trade and to find all practical and technical means of co-operation not only in the military field but the civil field as well.

Mr. Hugh Jenkins: Did my right hon. Friend find himself impressed in the discussion with the French view of developments in Vietnam and will he consider the possibility of making arrangements for such discussions to continue at another level with the possibility of there emerging a joint Anglo-French view on this difficult subject?

The Prime Minister: It was clear that the views of the two countries on Vietnam were not identical. I did not see any evidence that the view expressed by the French Government was more likely to lead to a peaceful and lasting settlement than the line that we are taking.

Mr. Maudling: Can the Prime Minister tell the House whether he discussed with General de Gaulle the importance of British attendance at any talks about the future political developments in Europe?

The Prime Minister: Yes, we stressed this very strongly indeed, as we had done in Bonn earlier, though I gather there is still some doubt about whether there are to be any immediate talks on this subject even in the Six.

The following communique was issued after meetings in Paris between President de Gaulle and members of the French Government, and Mr. Harold Wilson, Prime Minister of Great Britain, and Mr. Michael Stewart, the Foreign Secretary.— 2nd and 3rd April, 1965.
At the invitation of the French Government, the Prime Minister of the United Kingdom, Mr. Harold Wilson, and the Secretary of State for Foreign Affairs, Mr. Michael Stewart, visited Paris on April 2 and 3.
The Prime Minister was received by the President of the French Republic with whom he had a wide-ranging exchange of views in two conversations. There was also a separate meeting between Mr. Wilson and M. Pompidou.
Mr. Stewart had separate discussions on questions of foreign policy with the French Foreign Minister, M. Couve de Murville. The President and the Prime Minister also had discussions in a larger circle, which were joined by Mr. Stewart and, on the French side, by this Prime Minister, the Foreign Minister, the Finance Minister, the Minister of Transport and the Secretary of State at the Foreign Ministry.
Frank and friendly exchanges covered all problems of common interest to the two countries. The President and the Prime Minister discussed their respective points of view about the maintenance of the security of the West within the framework of the Alliance which unites their countries. Among the subjects discussed was relations with the East. The President and the Prime Minister agreed that, in view of the evolution of the situation, their Governments should continue to work for a steady improvement in their relations with the Soviet Union and the other countries of Eastern Europe. Other questions were also discussed from the respective viewpoints of the two Governments.
The situation in other parts of the world was also reviewed. The two Governments considered the problems of Africa and the Middle East in the light of their common desire to contribute to the stability and the economic development of these regions with full respect for the independence of the countries concerned. They agreed to remain in close contact on these problems.
The situation in South East Asia was the subject of careful study. Despite the differences between the views of the two Governments both sides recognised the dangers of the situation and the need for lasting and peaceful settlement in Viet-Nam.
The questions of economic and monetary policy were discussed. Mr. Wilson stated the determination of the U.K. Government to strengthen the British economy, to maintain

the present exchange value of sterling and to remove as soon as possible the import surcharge. The Prime Minister described the measures taken for these purposes. The President welcomed this statement.
There was a detailed discussion of the urgent and complex problems which arise in relation to international payments and the expansion of world trade. There was a full exchange of views on various means of dealing with the problems. It was agreed that the Ministers responsible should meet to discuss this question.
The President and the Prime Minister agreed that a successful conclusion of the Geneva tariff negotiations would contribute to more fruitful relations between the E.E.C. and E.F.T.A. countries.
The President and the Prime Minister agreed on the need for developing closer practical co-operation between France and Britain in the field of aviation and other advanced technologies. They agreed that the Ministers concerned should meet and examine in greater detail the scope for joint projects of this type, which might then, as appropriate, be opened to the co-operation of other interested Governments.
The President and the Prime Minister agreed that their talks had been of great value and had provided a basis for the development of Anglo-French relations in a spirit of cordiality. They agreed that they and their Governments would remain in close contact and that further Ministerial talks would take place as appropriate.

Paris, 3rd April, 1965.

OIL PROSPECTING (MINISTERIAL RESPONSIBILITY)

Mr. Murton: asked the Prime Minister what are the responsibilities of the Minister of Land and Natural Resources for oil prospecting in the United Kingdom and what is the division of responsibility between him, the Minister of Power, the First Secretary of State and the local planning authorities in this matter.

The Prime Minister: My right hon. Friend the Minister of Power has statutory authority for licensing prospecting for petroleum (which includes both oil and natural gas) on land in Great Britain and in its territorial waters, and in the United Kingdom's share of the Continental Shelf. My right hon. Friends the First Secretary of State and the Minister of Land and Natural Resources have no responsibilities for oil prospecting. Prospecting operations on land in Great Britain may involve development requiring planning permission which has to be obtained from the local


planning authorities. Oil prospecting in Northern Ireland and its territorial waters is a matter for the Northern Ireland Government.

Mr. Murton: Would not the Prime Minister agree that his statement is welcome because it does much to dispel certain conflicting statements made previously by his right hon. Friends the Minister for Land and Natural Resources and the Chancellor of the Duchy of Lancaster?

The Prime Minister: No, I have not heard any such conflicting statements and so I do not think there is any need to dispel any confusion which may have arisen from them.

Mr. Hector Hughes: Will my right hon. Friend ensure, in considering which licences should be given for the exploitation of this gas, that the national interest is not neglected as it was in the case of the exploitation of oil and natural resources in the North Sea?

The Prime Minister: Fortunately, I do not have to issue the licences in this case, so the question does not arise. It is done by my right hon. Friend.

COMMONWEALTH COUNTRIES (HIGH COMMISSIONERS)

Sir G. de Freitas: asked the Prime Minister if he is aware that in many newly independent Commonwealth countries the designation of the United Kingdom Government's representatives as High Commissioners often confuses British residents and citizens of the country to which they are accredited and leads to the belief that they have powers beyond those of the head of a diplomatic mission; and whether, at least in the case of those countries which are republics, he will discuss with their Heads of Government the possibility of describing the British High Commissioners and their High Commissioners as Ambassadors.

The Prime Minister: No, Sir. I think that any confusion that may occur in the minds of British residents and others is due more to temporary problems in the first days of independence than to mistaken inferences from the title "High Commissioner".

Sir G. de Freitas: Will the Prime Minister look at this again? Is he aware that more than one former High Commissioner believes that the dignity attached to the title "High Commissioner" is bought at too high a cost in misunderstanding in the country? Further, as since 1st January we have had a combined diplomatic service, would not he consider that is relevant?

The Prime Minister: Quite apart from the difficulty of the juridical problem of ambassadors being accredited to a country with a different Head of State from ourselves, I should have thought that there was some advantage—as I think the whole House would feel—in maintaining the special title to mark the special relationship within the Commonwealth.

Mr. Braine: May I ask the right hon. Gentleman whether he would not agree that there has always been and there should always remain a special intimate relationship between Commonwealth countries and ourselves and that in some ways a High Commissioner enjoys a superior status to an ambassador? For this reason is he aware that we on this side of the House would entirely agree that he should set his hand against deadly uniformity?

The Prime Minister: While agreeing with that, I do accept, as I said in answer to my hon. Friend, that there have been difficulties particularly in the early days. My hon. Friend, one of the few in this House who has had experience of being a High Commissioner, is aware of that. I still think that there is a case for keeping things as they are.

SUEZ OPERATION (BOOK)

Mr. M. Foot: asked the Prime Minister what facilities were provided by Her Majesty's Government to Mr. Terence Robertson, the author of a recently published book on the Suez crisis of 1956.

The Prime Minister: I would refer my hon. Friend to the Answer I gave to a Question by my hon. Friend the Member for Meriden (Mr. Rowland) on 2nd March.

Mr. Foot: May I tempt my right hon. Friend to go a little further than he did in those characteristically diffident answers? [HON. MEMBERS: "Oh."] Does he


appreciate that the most serious accusation made in this book is attributed to the French Prime Minister, M. Pineau, who makes the direct accusation of collusion against the right hon. and learned Member for Wirral (Mr. Selwyn Lloyd)? Does not my right hon. Friend think that an opportunity should be given to the right hon. and learned Member for Wirral to clear his good name?

Mr. Speaker: Order. We cannot, under our rules, get out of the difficulty about making accusations against another hon. Member"s honesty by putting words into the mouth of another.

Mr. Foot: Does not my right hon. Friend—[HON. MEMBERS: "Withdraw."]—think that it would be desirable to provide facilities for Mr. Terence Robertson, and anyone else, who can help to clear up the mystery? Will you tell me, Mr. Speaker, how that is out of order?

Mr. Speaker: I am sorry, I intend no discourtesy to the hon. Member, but I did not hear the last three words he then uttered owing to some odd echo in the amplifying mechanism. If he was saying that he wanted to know how he was out of order, the answer is that it depends on the implication of the word "collusion". In the circumstances it appeared to me to have a certain tang.

The Prime Minister: May I take it, Mr. Speaker, that I am now in order in answering the second supplementary question put by my hon. Friend? To be quite honest, I will tell my hon. Friend that since I last answered Questions on this subject I have been so busy that I have read only 20 pages of the book. I hope to make some progress in the course of the next 24 hours after which I hope to be able to help him on this point. To be honest, I have not reached the point in the book to which he was referring but I have expressed the view that it is up to the right hon. and learned Member for Wirral (Mr. Selwyn Lloyd) to stop all these questions by making a simple statement of the truth.

Sir T. Beamish: Is not it a pity in many ways that Mr. Robertson was not given a certain amount of official help which would have enabled him to present a less biased account of the Suez operation? Is the right hon. Gentleman aware

that whatever else is said about the Suez operation one thing is certain, that it forestalled a large-scale Egyptian attack—

Mr. Speaker: Order. The question relates to facilities being given for a book. It does not enable us to refight the Suez operation.

The Prime Minister: In answer to that part of the hon. and gallant Member's supplementary question which referred to facilities, I am not certain that would have been the position had it been possible to give facilities. I do not know what would have come out of it. I have not seen the record myself and that is why I hope that it will be cleared one day or another by right hon. Gentlemen opposite.

CABINET PAPERS

Mr. Michael Foot: asked the Prime Minister whether he will reconsider the operation of the 50-year rule governing the examination of Cabinet papers and comparative historical material; and whether he will propose that the period concerned should be reduced to 25 years.

The Prime Minister: I am considering this whole question at the moment and will make a statement as soon as I am in a position to do so.

Mr. Foot: I am grateful to my right hon. Friend for considering all my propositions so carefully. Would he take into account that if he would adopt the proposition which I make in the Question, we should at least be able to find out the truth about Munich, even if we had to wait a little longer for Suez?

The Prime Minister: I congratulate my hon. Friend on his arithmetic, which I think is right, but he should not get the impression that I have only looked at this since he put down the Question. I have been looking at it for some little time.

Sir G. Nicholson: Is the right hon. Gentleman aware that there is no need to look into Cabinet papers to find out that the Labour Party wanted to go to war over Munich, having consistently voted against every proposal to increase our armaments?

Orders of the Day — WAYS AND MEANS

Considered in Committee.

[Dr. HORACE KING in the
Chair]

Orders of the Day — BUDGET STATEMENT

Mr. Julian Ridsdale: On a point of order. May I seek your guidance, Dr. King? It has been announced outside the House that the Secretary of State for Defence will make an important intervention in the Budget debate on the TSR2. Could it be suggested, for the convenience of the Committee, that a separate statement could be made now or after Question Time tomorrow? It would be impossible for hon. Members on both sides of the House to cross-examine the Secretary of State for Defence on his speech.

The Chairman: The point which the hon. Gentleman has submitted to me is not a point of order.
Before I call the Chancellor of the Exchequer I have a short announcement to make.
The Committee will recall that it is the practice on this occasion—and for very good reasons—that copies of the Budget Resolutions are not made available until near the end of the Chancellor's speech. They are then circulated whilst the Chancellor is still speaking. This causes noise and disturbance during the end of the speech.
I therefore propose to arrange that today the process of handing round copies of the Resolutions shall not begin until the Chancellor has concluded his speech. There will then be a short pause while the copies are being handed round. As soon as I judge that this process has been completed, I shall call upon the Chancellor of the Exchequer to move the first Resolution, and from then onwards we shall follow the usual practice, according to Standing Order No. 90.
I hope that this will commend itself to the Committee. I understand it has the approval of the usual channels.

3.34 p.m.

The Chancellor of the Exchequer (Mr. James Callaghan): Our country has suffered from a weak balance of payments for many years. In the past decade we have preserved solvency only by periodic bouts of deflation which immediately reduced imports, but also sapped the confidence of management and labour at home and weakened our industrial power. Nineteen sixty-four was a year of reckoning for a decade of mistaken policies and false pride. The deficit amounted to £745 million, and would have been over £800 million if we had not been relieved from payment of interest and capital on our North American loan.

Orders of the Day — THE BUDGET THEME

The Chancellor of the Exchequer (Mr. James Callaghan): The strategy of this Budget is to achieve a state of balance on our combined current and long-term capital account. We have already made considerable progress. I aim to get most of the way towards closing the gap this year and to complete the process in the course of 1966. In doing so I am taking into account the need to reduce and later to abolish the temporary import charge as our progress warrants it.
We are changing direction; and the rest of my Budget speech will explain how I propose to bring this about.
Since this is to be—I apologise to the Committee—a long speech, covering an unusually wide range of issues, I propose to break with tradition and to state here and now two key points which would normally become clearer only in the course of the speech. First, I intend to reduce the net outflow of long-term capital from this country by at least £100 million a year. Secondly, I intend to decrease the pressure on our resources, through lower public expenditure and higher taxation, by £250 million.

Orders of the Day — TAX REFORM-FAIRNESS

The Chancellor of the Exchequer (Mr. James Callaghan): I shall use, as a Chancellor must, the instruments I have to hand. Among these are taxation and the control of public expenditure. These instruments will be used positively as well as negatively. For example, the Government have recently offered financial and other support to the British computer industry because it is vital to the new technology. We are ready and anxious to work with industry in a joint effort to


cut out dead wood and to raise efficiency. I should like to say to all who work in industry at whatever level that our aim is that those who earn high rewards through skill and enterprise should enjoy the berefit of them—but they must be earned.
In my own particular field of responsibility, we need a pattern of taxation serving the requirements of a modern and dynamic economic policy. It must, moreover, be seen to be fair. I shall be taking a long step forward in this Budget; but much has still to be done. I propose to carry out year by year a systematic and comprehensive review of every aspect of our tax system. I can foresee a programme of reform stretching years ahead.

Orders of the Day — (i) Capital Gains Tax

The Chancellor of the Exchequer (Mr. James Callaghan): First, I begin with tax reform. The failure to tax capital gains is widely regarded, outside as well as inside the Labour Party, as the greatest blot on our existing system of direct taxation. There is little dispute nowadays that capital gains confer much the same kind of benefit on the recipient as taxed earnings more hardly won. Yet earnings pay tax in full while capital gains go free. This is unfair to the wage and salary earner. It has in the past been one of the barriers to the progress of an effective incomes policy, but now my right hon. Friend the First Secretary of State has carried this policy forward to a point which many did not believe was possible six months ago. This new tax will provide a background of equity and fair play for his work.
Moreover, there is no doubt that the present immunity from tax of capital gains has given a powerful incentive to the skilful manipulator of which he has taken full advantage to avoid tax by various devices which turn what is really taxable income into tax-free capital gains. We shall only make headway against avoidance of this sort when capital gains are also taxed.
I have already given a general outline of my proposals. Broadly, the tax will be levied on gains realised on all assets, with limited exceptions: of these exceptions the most important will be the owner-occupied house, and goods and chattels realised for not more than £1,000.

Orders of the Day — COMPANIES AND SHAREHOLDERS

The Chancellor of the Exchequer (Mr. James Callaghan): It has been suggested that a double charge will arise, which ought to be relieved, if a company is taxed on its capital gains and its shareholders are also taxed on the gains which they make on disposal of their shares. I regret that I cannot accept this view. The capital gains of the company and of the shareholders are two separate things, just as under the Corporation Tax structure the profits of the company and the dividend of the shareholder are two separate things. There is no more reason to give credit in the one case than in the other.

Orders of the Day — UNIT AND INVESTMENT TRUSTS

The Chancellor of the Exchequer (Mr. James Callaghan): There is, however, a special case for relief for unit trusts and investment trusts. It would not be right, in my view, to exempt the trusts from the tax, and tax only the shareholder, for this would mean that the taxation of his gains would be unduly deferred compared with those of an investor who invests in securities directly. I propose, however, that the net capital gains on which tax has been paid by the trusts should be deducted from the chargeable gain of the shareholder.

Orders of the Day — BUSINESS ASSETS

The Chancellor of the Exchequer (Mr. James Callaghan): I have also considered the treatment of gains realised on the sale of business assets, such as a factory building, where the proceeds are re-invested in new assets of the same kind. Here, I propose that no tax shall be charged on gains realised on the sale of the assets, but that the gain shall be treated as reducing the price paid for the new asset. If the new asset is eventually sold without being replaced, then the gain on both the old and the new asset will, in effect, be taxable at that time. I believe that by this means I shall secure that the tax will not impede desirable industrial and commercial development and the transfer of businesses out of congested areas.
The types of business asset that I have in mind here are land, buildings and fixed machinery or plant, and also ships and aircraft.

Orders of the Day — FIXED-INTEREST SECURITIES

The Chancellor of the Exchequer (Mr. James Callaghan): It has been suggested that gains realised on Government and other fixed-interest securities should be exempt. I would like to make clear again that there


Will be no tax payable where the eventual selling price is lower than the original purchase price, even though the price at the time of sale is higher than the price today. But I can see no justification for exempting gains from such investments, whether or not they were issued at a discount. The gain on the redemption of such securities is just as much a capital gain as any other. Indeed, the rise in price with the approach of the redemption date is something that is clearly foreseen and expected, and has all the characteristics of ordinary income. It must, therefore, be brought within the scope of taxation if equality of treatment is to be secured between taxpayers. Moreover, a look at the deals in the gilt-edged market shows that to excluded them would leave a wide open door for avoidance.
This does not affect financial institutions, such as the banks and the discount houses, which are already subject to tax on any gains they make from the disposal of securities. Nor does it affect those who are exempt from tax at present and will continue to be exempt from the new tax, such as charities and approved superannuation funds and overseas institutions generally. These two classes of institution, one paying full tax and the other wholly exempt, are responsible for a high proportion of the transactions in the gilt-edged market.
The life assurance companies occupy an intermediate position between these two classes. The investment income of their life funds is subject to income tax, but their gains from the realisation of securities, in effect, largely go tax-free. I do not think it right that this situation should continue in the context of a Capital Gains Tax which is to apply quite generally; and I therefore propose that the gains of life assurance companies, both short-term and long-term, should be brought within its scope. This will not apply to the pension annuity funds of life offices which enjoy exemption from Income Tax. There will, of course, be no question of double taxation of the policy holders" receipts, as I have already announced that sums received on the maturity or surrender of normal life assurance policies will be outside the scope of the tax.
Neither the introduction of the Capital Gains Tax generally nor this particular proposal on life assurance companies will, in my judgment—and I have looked carefully into this matter—significantly affect the fluidity of the gilt-edged market.

Orders of the Day — WASTING ASSETS AND SETTLED PROPERTY

The Chancellor of the Exchequer (Mr. James Callaghan): The Finance Bill will contain special provisions in regard to wasting assets and settled property.

Orders of the Day — VALUATION

The Chancellor of the Exchequer (Mr. James Callaghan): I now turn to the problem of valuation. As the Committee is aware, the tax will be imposed only on gains realised after today. It will apply irrespective of the date when the underlying assets were acquired; but the gain to be charged will not exceed the difference between the disposal price and the value of the asset today. No one, however, will be charged on more than the actual gain he has realised on the asset. Correspondingly, relief for losses will be limited to the loss referable to the period after today, or to the actual loss realised if less.
There is no problem of valuation for quoted shares and securities whose market value can readily be ascertained and will be adopted. For other assets I do not propose that there should be an immediate valuation. Instead, my solution is that the taxable fraction of the total gain realised—that is, the part which accrues after today—shall be arrived at by a simple process of time apportionment.
Thus, if an asset was acquired on 6th April 1963, two years ago, for £10,000 and is disposed of on 6th April, 1966, for £16,000 the total gain will be £6,000 and the taxable part will be one-third of this, £2,000, because two-thirds of the period of ownership elapsed before the start of the tax today and one-third after today. Where an asset was acquired more than 20 years ago, however, the period of time between acquisition and disposal will be treated as the period between today and the date of disposal plus 20 years. I think that 20 years is far enough to look back for this purpose.
I hope that by this simple device we shall save a great deal of valuation work; but I should make it plain that in all cases which are prima facie subject to the time apportionment the taxpayer will


have an option to take the actual value of the asset today as the starting figure, instead of the value calculated by means of the formula.
I propose one other exception to the time apportionment formula besides quoted shares and securities. In the case of land which is suitable for development the time formula could produce an entirely wrong result, since it is characteristic of such land that its value does not normally appreciate at a uniform rate, but is liable to sudden upward jumps. In this type of case, therefore, valuation as at today will be required. This does not mean that the actual valuation must be carried out at once. The question will not actually arise until the property is disposed of.

Orders of the Day — U.K. RESIDENTS

The Chancellor of the Exchequer (Mr. James Callaghan): Before I come to the general structure of the tax I must mention one modification of my statement of 8th December. I said then that the tax would be chargeable in the case of persons, including companies, who are resident in the United Kingdom, and that such persons would be liable to tax on all realised gains wherever the assets are situated. On consideration, I have decided that the tax must also apply where a person is ordinarily resident here, even though he may not be resident here in a particular year; I am satisfied that this modification is necessary in order to prevent avoidance of the tax.

Orders of the Day — SHORT-TERM GAINS

The Chancellor of the Exchequer (Mr. James Callaghan): Now, the main structure. I have decided that it is right to retain a distinction between short-term and long-term gains; and to this extent the new tax will be dovetailed into the tax introduced in 1962 by the right hon. and learned Gentleman the Member for Wirral (Mr. Selwyn Lloyd). I propose, however, two major modifications to the 1962 tax. First, the 1962 tax extends only to a limited range of assets; but the new tax will apply to all assets, subject to the exceptions which I mentioned in my statement of 8th December. Secondly, under the present tax there are different qualifying periods, namely six months and three years, for securities and land respectively. These periods will continue to apply to assets within the scope of the present tax which taxpayers already hold today; but, for

the purposes of the new tax, I propose to adopt a period of 12 months in all cases.
Accordingly, gains which are realised on any chargeable assets acquired after today and disposed of within 12 months will be treated as ordinary income and taxed at ordinary income tax and surtax rates as under the 1962 Act. I do not, however, propose to apply the short-term gains tax to assets which are transferred on death; thus, under my proposal, gains realised at death will be liable to the long-term and not the short-term tax, even though the assets in question have been owned for less than 12 months.

Orders of the Day — LONG-TERM GAINS

The Chancellor of the Exchequer (Mr. James Callaghan): As for assets which are held for periods exceeding 12 months, I think that it would not be reasonable to subject a gain which may have accrued over a long period to the full rates of Income Tax and Surtax applicable to ordinary income for the year in which the gain is realised. I propose, therefore, that these long-term gains shall be taxed at a flat rate. Given a flat rate, I do not consider that there is any need to taper the rate according to the length of time for which the asset has been held, and the flat rate will, therefore, apply irrespective of the period of ownership.
The flat rate which I propose for the year 1965–66 is 30 per cent. as far as individuals are concerned.
I propose to make a concession which will be of value to people who, while by no means poor, nevertheless do not enjoy great wealth and make an occasional capital gain. I propose that, as an alternative to the flat rate on the whole gain, two-thirds of the gain may be charged to Income Tax—and to Surtax, where applicable—as ordinary income of the taxpayer, and the remaining third exempted, if that is more favourable to him. For example, we can take an elderly married couple over 65, whose income is one-third investment income and two-thirds pension. The alternative basis that I propose will be more favourable if their ordinary income plus two-thirds of the gains is less than about £2,500.
I propose that capital gains realised by companies—and this applies to both short-term and long-term gains—shall be subject to corporation tax at the corporation tax rate. A company is a continuing


association which has as its main purpose making profits; whether those profits arise as trading income or as capital gains is immaterial, and I think that it is right that they should be taxed at the same rate. I must, however, provide for companies whose profits made in 1965–66 will be assessed to Income Tax on the current year basis and not to corporation tax—for example, companies commencing and ceasing business. I propose that in such cases the rate of tax on long-term capital gains for 1965–66 shall be 35 per cent.
The Finance Bill will contain detailed provisions and rules for computing chargeable gains and for combating avoidance. I am aiming to ensure, so far as possible, that these rules follow those in the Ninth Schedule to the Finance Act, 1962, with which taxpayers and their advisers are already familiar. But, of course, a longterm tax needs fuller provisions; and other matters with which the 1962 Act did not concern itself will also be dealt with.
I estimate that the yield of the capital gains tax will eventually build up to a figure of about £125 million a year: in 1966–67 the long-term and short-term taxes together are expected to yield about £12 million, and in 1967–68 about £30 million.

Orders of the Day — (ii) Tax Avoidance

The Chancellor of the Exchequer (Mr. James Callaghan): Another way of bringing greater fairness into our tax system is to close the many loopholes which have been exploited for far too long. Those who take advantage of them make a gain for themselves; but they throw a greater burden on the rest of the community. Moreover, there are a number of other practices which are at present legal, but are becoming increasingly distasteful to ordinary citizens. When in opposition we promised to tackle the whole problem of avoidance; and this will link with our general theme of getting rid of the inequalities that have grown up from a misuse of the tax system. A lot of tightening up needs to be done. I cannot cover the whole ground this year, but I propose to make a start.

Orders of the Day — BUSINESS ENTERTAINMENT

The Chancellor of the Exchequer (Mr. James Callaghan): Many firms are very scrupulous about business entertainment. But there has

been widespread criticism for some years of the habit in some circles of lavish entertainment by businessmen of one another on the pretext that it is necessary to create goodwill to secure a customer. Something which originally began as the hospitable offering of a modest meal to a client at small expense has grown to such a pitch that luxury penthouse flats are kept on business expense accounts, yachts are hired, and even Scottish landlords can turn a penny by letting their grouse moors. And provided that this is done in the sacred name of business entertainment, the taxpayer pays 10s. or more in every £ of the cost. No doubt because of this fact, expense account living, as it has come to be called, is often on a scale which is a scandal, and is felt to be so not only by the non-business world but by many firms in industry which have a different code of conduct.
In my view, the time has come to apply a radical solution to a problem which is not only a fiscal but a social one. I propose that, subject to a limited exception for the entertainment of overseas buyers, expenditure on business entertainment incurred after today should, in general, be completely disallowed for tax purposes. So far as possible, the disallowance will be made in computing the business profits; this will apply both to entertainment which a business pays for direct and also, for example, to expenditure which is incurred by a director or employee and reimbursed by the employer. Where, however, the cost is borne by the director or employee out of inclusive remuneration, it will be disallowed in computing his liability.
I recognise that this general disallowance of business entertainment for tax purposes will not prevent firms from continuing to entertain on a lavish scale if they desire to do so. But at least the rest of us will have the satisfaction of knowing that from now on the businesses in question are paying for it out of their own profits and are not being heavily subsidised by the Exchequer.

Orders of the Day — BUSINESS CARS

The Chancellor of the Exchequer (Mr. James Callaghan): Next, business cars. The provision of business cars is, of course, in an entirely different category from what I have


been talking about. Nevertheless, I consider that the present capital allowances for business cars are unduly generous at the outset; with initial allowance of 30 per cent. and annual allowance of 25 per cent., over half the cost can be written off for tax purposes in the first year, except in the case of the more expensive cars. I see no need to continue this incentive to the purchase of business cars; and I therefore propose to withdraw the initial allowance for motor cars purchased afted today. Firms will, of course, continue to be entitled to the annual allowance.

Orders of the Day — DEEDS OF COVENANT

The Chancellor of the Exchequer (Mr. James Callaghan): I turn now from the business world to the very large question of avoidance of Surtax. There is a great deal to be done here; and this year I propose to make a start with covenants. Deeds of covenant by Surtax payers result in too much of their bounty being provided at the Exchequer's expense. For this reason, sums paid to charities under covenant are not allowed as Surtax deductions and I now propose to extend this disallowance for Surtax to all payments under covenant. This will apply to all covenants entered into after today.

Orders of the Day — STAMP DUTY AVOIDANCE

The Chancellor of the Exchequer (Mr. James Callaghan): I have one other anti-avoidance proposal. Last month it was decided by the courts that the Stamp Duty on the transfer of property is avoided if the transfer is made in contemplation of a sale, but before the sale actually takes place. I propose to stop this right away. I shall also deal with another device, which consists of reducing the value of property subject to duty as a voluntary disposition by including a power of revocation which can subsequently be released.
The four proposals I have made begin the process of making the tax system fairer and more bearable to the general body of taxpayers, who feel with some justice that the burden is not equally borne today. Moreover, these changes will bring in a substantial revenue. I expect the figure to be about £35 million in 1966–67 and about £45 million later.

TAX REFORM—EFFICIENCY

Corporation Tax: Domestic Aspects

MAIN OBJECT

The Chancellor of the Exchequer (Mr. James Callaghan): I now turn to Corporation Tax. The Corporation Tax is the most fundamental of the tax reforms in this Budget. It is a new landmark in our fiscal history, such as we have rarely been able to create in this country save under the stringent needs of war.
Our present method of taxing corporate bodies goes back to the days before the joint stock company, as we know it, existed, when the few companies that did exist were thought of as being in the nature of large partnerships. At that stage, Income Tax was virtually a flat-rate tax: it applied to the income of companies and individuals alike; and when a company distributed its income to its shareholders in the form of a dividend, a second lot of tax was not exacted. Since those days, there have been extensive changes both in the tax system and in the status and position of companies.
First, the personal Income Tax has become a graduated tax, differentiated according to the circumstances of each taxpayer, and made progressive by reduced rate relief at the lower end of the scale, and Surtax at the upper end. Secondly, company taxation has been altered by the introduction of Profits Tax, which is imposed on the whole profits of a company, whether or not distributed, and which is not repayable to shareholders. These changes have made obsolete the idea that companies and individuals should be treated for tax in the same way. By separating formally the two taxes, namely, the tax on corporations and the tax on individuals, we shall be bringing the tax system of the United Kingdom into line with reality and adopting what has become the general practice throughout the world.
Hitherto, any idea of reforming the Tax system by introducing a Corporation tax in this country has foundered because of the widely held view that to levy a separate tax on company profits which is distinct from, and additional to, the Income Tax levied on individuals would constitute "double taxation" of company profits. The Profits Tax already contradicts this argument. The truth is


that only a part of a corporation's income is distributed to the shareholders in the form of dividends; the rest is not part of personal income and cannot be treated as such. The majority of the Royal Commission on Taxation came near to this view when it said:
We accept the necessity for subjecting company profits to a special tax régime that is something more than a mere attempt to collect personal income tax in advance".
But it baulked at the logical conclusion, which is that there should be a separate tax on the profits of corporations quite distinct from the Income Tax that is levied on distributed profits.
There then remains the question of how to frame the tax on company profits. As soon as it is divorced from the taxation of individuals, we are free to draw it up on principles most conducive to economic growth and efficiency. The two ways open to us of raising the same amount of revenue from corporations are, either to confine the tax to undistributed profits and levy it at a relatively high rate; or, alternatively, to impose a tax on the whole profits, irrespective of distributions, at a much lower rate.
The latter tax, in my view, has a much greater economic and incentive value than the former. A tax confined to undistributed profits penalises investment and growth; it severely handicaps the young and dynamic companies which must rely on ploughed-back profits for expansion. A tax on the whole profit has the opposite effect. It makes it possible to shift the burden of taxation in such a way as to relieve the faster-growing companies, which are generally low distributors, and thus enable them to expand even faster. It will place more of the burden on those companies which are high distributors. It gives a strong incentive to all companies to plough-back more of their profits for expansion. Finally, the incentives to cut costs and to raise efficiency through new investment are much stronger, and must be much stronger when a lower percentage of additional profits is taken in taxation than under the present system, where 56¼ per cent. of any additional profit would go in tax.
The present system is also unnecessarily complicated because of the existence of

two taxes—Income Tax and Profits Tax —levied broadly on the same income, but according to different rules. It is a patchwork system and it is not standing up to the strains that result from the efforts of Governments to use the tax system for economic purposes. The result has been the growth of abuses and anomalies, such as recovery by companies or individuals of large sums from the Revenue by way of repayment of tax, although no corresponding sum has ever reached the Exchequer.
There are some important matters which I should refer to now.

RATE

The Chancellor of the Exchequer (Mr. James Callaghan): First, the rate. I have said before that it is not my intention to throw new burdens upon industry, but rather to redistribute the existing burden in a way more likely to meet the economic needs of the country. I have also said that a rate of 35 per cent. would bring in revenue equivalent to the combined yield of Income Tax at 8s. 3d. in the £ on undistributed profits and Profits Tax at 15 per cent. on total profits. That is the situation today. Obviously, I cannot foretell today what the budgetary requirement will be next year and, therefore, I cannot say now the amount of tax which industry, like individuals, will be called on to pay. What I can say is that as I see it today there is every likelihood that the rate will not exceed 40 per cent. I think that the Committee will recognise that I am not fixing the rate; but companies should be able to make their calculations with reasonable confidence in the light of these figures—[HON. MEMBERS: "Oh."]—with at least as much reasonable confidence as they have now when they do not know the rate of Income Tax for next year, either.

INVESTMENT ALLOWANCES

The Chancellor of the Exchequer (Mr. James Callaghan): Many of the representations I have received have pointed out that at a figure of 35 to 40 per cent. the reduction in the rate of tax charged on company profits will mean that the value of investment allowances is diminished; some have suggested that the rate of allowance should be increased to compensate for this. It is, of course, true as a piece of arithmetic that the lowering of the rate of any tax does in one sense reduce the value of any relief given from that


tax. But that is not a reason for increasing the relief every time the tax is reduced. The effect of the new system will be that company profits as distinct from dividends will be taxed at an appreciably lower rate than at present, and I do not feel called upon in these circumstances to provide a general additional benefit to industry by increasing the rate of the allowances.
I have been following with interest recent discussions about whether investment allowances are achieving their purpose. These allowances were introduced with the sole object of providing an incentive to investment; and they at present cost the Exchequer over £300 million a year. The Report of the Richardson Committee, the results of various pieces of private research, and now the recent report to the National Economic Development Council by the Management Consultants" Association, all provide evidence that the vast majority of firms look at the return on investment before payment of tax in judging new investment projects. If that is true, it means that investment allowances are not an efficient incentive. At the same time, it has been represented to me that, in order to foster modernisation and the growth of the economy, we need an incentive which gives a particular and positive stimulus to the adoption of new techniques of production. I should welcome further discussion of this subject so that we can consider whether here are better ways of helping industry. I have set myself the task of looking into the whole question in the forthcoming year.

INTER-COMPANY DIVIDENDS: FRANKING

The Chancellor of the Exchequer (Mr. James Callaghan): I now turn to a question on which have received many representations, namely, the treatment of dividends received by one United Kingdom company from another. A company will be charged to Corporation Tax on its income. The question is whether a dividend paid out of income on which Corporation Tax has already been paid should be charged to Corporation Tax again in the hands of a recipient company. At present, a United Kingdom company which receives a dividend from another United Kingdom company is not charged to either Income Tax or Profits Tax on the dividend. The dividend is

received under deduction of Income Tax, and for Profits Tax liability it is treated as franked by the Profits Tax paid by the paying company.
As I indicated in my previous statement, I do not propose to charge a parent company to Corporation Tax on dividends received from a United Kingdom subsidiary; and I think that it is clearly right to extend this same treatment to consortia, that is, cases where two or more companies jointly control another company which is not a subsidiary of any one of them.
As regards other types of case, I have found this a very difficult question. The arguments point in different directions. The experience of other countries which I have studied affords no clear guidance because some do one thing and some another.
Let me state the argument. First, we do not want to encourage trading companies to pile up superfluous funds for which they can find no use in their business, either immediately or in the foreseeable future. The purpose of the new tax is to encourage plough-back, not mere retention. We do not want, therefore, to provide through the tax system an incentive to companies to engage in passive investment by acquiring portfolio investments in other companies. On the other hand, all companies need reserves; and many companies must save up over a period of years to replace their fixed assets or to provide funds for expansion and development. The problem is how to steer a course which does not damage the company which is accumulating reserves for genuine business purposes but does not, at the same time, give a benefit to the company which is passively retaining unwanted money.
The solution that I propose is this. Dividends received by companies from other companies which are liable to Corporation Tax will not be chargeable to Corporation Tax again; in other words, the dividends will be franked for Corporation Tax purposes in the same way as they are now for Profits Tax. The dividends will, however, have had Income Tax deducted, for all companies will have to deduct Income Tax from all the dividends they pay whether they go to individual or to corporate shareholders.


My proposal is that, in the case of dividends received by companies, other than dividends from subsidiaries or jointly controlled companies, this Income Tax should not be repayable, but should be capable of being set off against the Income Tax which the company will have to deduct and account for when it, in turn, distributes dividends to its shareholders. This scheme, while not seriously affecting the ordinary case, will provide a safeguard against too great an accumulation of investments in the hands of companies.
I make it clear that I do not necessarily regard this solution as right for all time. There is a risk that the increasing tendency of companies to make substantial portfolio investments in other companies with which they have trade relationships can lead to undue rigidity in the structure of industry and to an unhealthy restriction on competition. This is a subject about which comparatively little is known at present; and my right hon. Friend the President of the Board of Trade, who is asking Parliament now for additional powers to deal with monopolies and mergers, is considering with me the desirability of promoting some research into this. Meanwhile, he will keep a watch on future developments; and if it appears that the system needs amendment, I shall propose further changes in the treatment of intercompany dividends.

CHARITIES

The Chancellor of the Exchequer (Mr. James Callaghan): Fears have been expressed that the introduction of the Corporation Tax will prejudice the position of charities. At present, contributions by companies to charities are not in general allowable as a trade expense. But, if a company binds itself under a covenant to make annual payments for more than six years to a charity, it deducts Income Tax from the payments, and, if it makes sufficient profits, does not have to account to the Revenue for this tax. Nevertheless, the charity is able to reclaim from the Revenue the tax which it has suffered. Under the new system the Income Tax which the company deducts will not be franked because the company is not liable to Income Tax; but it will have

to account to the Revenue for the tax which it has
deducted.
The question will then arise whether the company will be entitled to any deduction for Corporation Tax for these convenanted subscriptions. No such deduction is permitted for Profits Tax, and it could well be argued that it would be wrong for any deduction to be given for Corporation Tax, for what is in essence a voluntary application of income. But, whatever the strict theory may be, the entitlement of a company to tax relief on convenanted subscriptions to charities has become so well established that I do not think that it would be right at this stage to alter it, because the effect of refusing relief might be very serious, and for some charities catastrophic. I propose, therefore, to introduce provisions under which companies will be entitled to deduct for Corporation Tax purposes contributions which they make under deeds of covenant for more than six years in favour of charities.

DIVIDENDS PAID OUT OF PAST PROFITS

The Chancellor of the Exchequer (Mr. James Callaghan): Another problem to which many of the representations I have received have drawn attention is the payment of dividends out of past profits. In general, companies will be required to account for Income Tax on all dividends paid after 5th April 1966. Some of these dividends will, naturally, come out of profits made before that date. In general, however, this will not cause any difficulty, because any company which has been in existence for some time will have paid only Corporation Tax on the profits made in the year 1965–66. There is no case for any general provision enabling companies to claim that dividends paid after 5th April, 1966, should be relieved of Income Tax because they have come out of earlier profits which have already borne Income Tax. The reduction in the rate of tax which will be charged on a company's profits under the new system is made possible only by the imposition of a separate charge on dividends; and if there were a transitional period in which little or no tax was payable on dividends, the loss to the Exchequer would be extreme. But there are transitional difficulties which will have to be dealt with in special types of cases; and I shall propose measures designed to give relief in these exceptional cases.

CLOSELY CONTROLLED COMPANIES

The Chancellor of the Exchequer (Mr. James Callaghan): As hon. Members will know, there are provisions in the existing tax system to deal with avoidance of Surtax through the retention of profits by closely controlled companies. The temptation to withhold profits from distribution unnecessarily will be far greater under the new system because Income Tax as well as Surtax would be avoided. Clearly, the existing provisions must be extended to cover Income Tax as well as Surtax and must be tightened up in a number of respects. There will, therefore, he provisions in the Finance Bill which will impose Income Tax and Surtax on a closely-controlled company which fails Lo distribute a reasonable proportion of is profits, having regard to its needs for maintaining and developing its business.
So much for the internal aspects of the corporation tax.

EXTERNAL CAPITAL ACCOUNT

(i) External Capital Account: General

The Chancellor of the Exchequer (Mr. James Callaghan): I now come to the external aspects of the corporation tax and to exchange control. Before I describe my proposals in detail I must break off and outline the situation of our external capital accounts. During the last 10 years, while we have an the average earned a surplus of only about £25 million a year on our current account, we have invested net abroad, in all forms, private and official, an average of £170 million a year. Our income £25 million, our outgoings £170 million. This has been so even in years when our balance on current account has been heavily in deficit, as in 1964. No nation can go on doing this year after year with impunity.
Let me illustrate what has happened by taking private and Government overseas investment together. In the 13 years between 1952 and 1964—there is no significance in taking that period—the total flow of our new investment overseas in all forms, private and official, good, bad or indifferent, has amounted in the aggregate to around £4,000 million. Our total stock of long-term assets abroad has risen to something of the order of £11,000 million in value by the end of 1964. Over £1,000 million of this is official assets. The rest, about £10,000 million, is in private assets, of which it is estimated that rather under £4,000 million

is in portfolio securities at market values and about £6,000 million is direct investment of all kinds at book values. That, I think, would make very goal hearing on the foreign bourses.
Yet, over the same period from the end of 1951, our reserves have moved hardly at all, and are now much smaller in relation to our imports than they were. At the same time our short-term monetary position, excluding the change in the reserves, has deteriorated by over £750 million. No one looking dispassionately at these figures could fail to agree that, whatever the strength of our assets overseas, our national balance sheet is badly lopsided in its emphasis on long- rather than short-term assets.
It is significant that our tax arrangements, particularly since the Second World War, have been so fashioned as to give a positive bias towards overseas, compared with domestic, investment. Some part of the responsibility for what has occurred must, therefore, rest on the tax system. In many respects we have tilted the balance in favour of overseas investment to an extent that is unique in the world. There might have been a case for such exceptional treatment in the nineteenth century when the capitalist system generated a volume of savings that could not all be profitably employed in Britain—or so it was thought. But, in fact, most of our tax provisions, which are of such remarkable generosity, are of more recent origin, and were introduced at a time when our balance of payments was already under considerable strain and when we were not in a position to give special advantages to overseas investment.
The time has certainly come to do something to correct this. In approaching this problem the Government are very mindful of both the benefits which accrue from overseas investment—particularly the contribution which overseas companies with strong British ties make to our exports—and also the contribution which income from investment can make to the balance of payments in the long run. [HON. MEMBERS: "Hear, hear."] We are in absolute agreement. There is no difference between us. For these reasons overseas investment will always he bound to play an important rôle in the nation's economy.
However, nothing in present circumstances is exempt from critical scrutiny—not even overseas investment. I offer two thoughts for consideration. The first is that, whatever the annual yield in terms of profits on such investment may be, the adverse impact in the short run on our balance of payments is often many times as large; and it is in the short run that our problems will be at their greatest and that the contribution which a reduction in the capital account deficit can make will be most valuable. These are, after all, the considerations which have prompted some of the measures recently taken by the United States to deal with its own balance of payments difficulties, measures which already appear to be having a substantial degree of success.
The second point I wish to make—I think it important that the Committee should analyse and examine this—is that the return we receive from our long-term investments overseas is, in fact, a moderate one, and is on average considerably less, from the point of view of the national economy, than the return on home investments. This is because income earned abroad bears tax in the country of origin, so that the benefit to the United Kingdom is measured by what is left after the payment of foreign taxes. In the case of home investment, on the other hand, the benefit to the national economy is measured by the return before tax; the fact that the State takes a slice of the profits does not diminish the advantage to the nation as a whole resulting from the investment. The additional tax receipts benefit the nation in the same way as the additional profits accruing to the proprietors. They are available to meet public expenditure, or to remit other taxation.
From the point of view of the private investor, on the other hand, since his payment of foreign tax is generally fully relieved by a reduction in his United Kingdom taxation, it is a matter of comparative indifference to him whether he pays his taxes to a foreign Government or to the United Kingdom Exchequer. Indeed, our existing tax arrangements in some ways go beyond this.
Without going into too much detail, I should like to illustrate my point with some figures. As I have said, our private

direct investments abroad came to about £6,000 million at the end of last year. The return on them, after overseas tax, was around 8 per cent. on the book value of the assets employed, and about half of this figure—some 4 per cent.—brought no immediate benefit to our economy since it was reinvested abroad. On the other hand, the average yield on industrial investment in the United Kingdom in 1964 has been estimated at about 15 per cent. before tax, or, say, just under 9 per cent. after full payment of Profits Tax and Income Tax as abated by investment allowances.
So much for a comparison of the direct return on overseas, as against home, investment. It should also be borne in mind, however, that investment, wherever it is undertaken, brings indirect local advantages in increased productivity and higher incomes generally, over and above the financial return measured at so much per cent. on the capital employed. When we invest at home, the true measure of the benefit to us is greater than the financial return on the investment. Similarly, when we invest abroad, we assist the economic development of the overseas countries to an extent that is greater than the bare profit which we receive in return.
No one, of course, would wish to go back on the principle of giving relief for overseas taxation which has been gradually built up over the last 40 years and has benefited considerably the developing countries. If every country followed the strict logic on this matter and treated overseas tax on overseas investment simply as a sum to be deducted from the profits sent home, and then taxed the remaining profit at full rates, overseas investment would be restricted to only the most highly profitable ventures. But I have to face the fact, as does the Committee, whatever may be our interest or our approach to this problem, that our present tax arrangements go well beyond what is justified in existing circumstances and mean that in a number of cases the United Kingdom investor incurs a lower tax burden by investing abroad than by investing at home. For example—this really puts the whole thing in a nutshell—we treat a British investor in the United States better for our tax purposes than we treat a British investor in our own country and better than a United States investor is treated by his country for tax purposes


if he invests either in the United States or in the United Kingdom. [An HON. MEMBER: "Time for a change."] It is time for a change.
To sum up: the tax system we have been operating is too favourable to investment abroad compared with investment at home. Partly, though, of course, by no means entirely, as a result of this, our long-term assets abroad have been built up over the years to a massive amount. But, at the same time, our vital gold and dollar reserves have remained stationary, and the short-term liabilities to which they constitute the backing have risen excessively. This is the problem, and the one which brings us to a halt every few years.
I have decided, therefore, that the time has come to change the direction of our policies. My object is threefold. First, I propose to go some way towards correcting the present bias in our tax system in favour of overseas, as compared with domestic, investment. The rewards in future will be more nearly equal. Secondly, I intend to make certain changes in exchange control which will have the result of increasing our foreign exchange revenues in various ways. Thirdly, I propose to make arrangements under which we can reinforce the official reserves by channelling into them some of the proceeds of the large accumulation of portfolio assets in private hands at the point of sale. These measures will strengthen the balance of payments, will help us in financing the overseas investment which will still go on, and will improve the present unsatisfactory relationship between our short-term assets and our short-term overseas liabilities.

(ii)Corporation Tax: External Aspects

The Chancellor of the Exchequer (Mr. James Callaghan): With this as background, I now take up again the external aspects of the Corporation Tax.

UNDERLYING TAX

The Chancellor of the Exchequer (Mr. James Callaghan): I propose to limit the circumstances in which we give relief for underlying tax, that is, the tax charged by an overseas Government on the profits of an overseas company out of which the dividend is paid and remitted to this country. I do not propose to disturb the present arrangement under which relief is given where a United Kingdom company owns 25 per cent. or more of the shares in an overseas company. But it would be

anomalous to continue to give relief in this way for overseas portfolio investment when a United Kingdom investor in a United Kingdom company has to pay tax in full on his dividends without any credit for the tax paid by the company on its profits. In many cases such relief is given at present under double taxation agreements, and we shall, of course, honour our obligations under such agreements.
My policy will be to renegotiate as soon as possible agreements which give this relief for portfolio investment in securities abroad and also to introduce legislation to withdraw the relief where we give it unilaterally. But I do not wish to deny the benefit of this relief to portfolio investment in the Commonwealth until we have seen what progress can be made in renegotiating our agreements; and the withdrawal will, therefore, only take effect from a date to be determined later.

OVERSPILL

The Chancellor of the Exchequer (Mr. James Callaghan): There is another piece of jargon, "overspill", that is, the treatment of dividends paid by United Kingdom companies out of overseas income.
As I said in my statement in December last, it is a natural corollary of the Corporation Tax that credit for overseas tax paid by a United Kingdom company should be given only against the Corporation Tax for which the company is liable on its profits in this country. It should not be given against the Income Tax due from the shareholder on his dividends. The shareholder in a United Kingdom company will not get credit against the Income Tax chargeable on his dividend for the United Kingdom Corporation Tax paid by the company; and it would be absurd to give credit for overseas Corporation Tax. I have received a great many representations urging that the overseas tax paid by companies trading overseas should be allowed to "spill over" and qualify for relief against the shareholder's Income Tax. I am convinced that to make this spill-over relief a permanent feature of our new system would be inconsistent with the principles of the tax and contrary to the national interest.
But companies trading overseas and their shareholders have come to expect this relief; and I accept the argument


that a sudden withdrawal of it might create hardship. This could arise particularly where a company is anxious not to reduce the proportion of its profits put to reserve and would therefore be obliged to make a sudden drastic cut in its dividends. I intend to provide transitional relief by way of cash payments to companies affected: the relief will be related to past performance, will begin to taper off after the first two years and will disappear after five years, i.e., after 1970–71. These payments will be reduced if the company increases its dividends. A Financial Resolution will be required.

OVERSEAS TRADE CORPORATION SCHEME

The Chancellor of the Exchequer (Mr. James Callaghan): Finally, I propose to abolish, from April, 1966, the special tax treatment of the Overseas Trade Corporations. That treatment, under which they pay no Profits Tax and enjoy special Income Tax concessions gives excessive advantages to these corporations. The Report of the Royal Commission on Income Tax, in 1920, and the Report of the Royal Commission on Taxation, in 1955, set out not only the case for exemption, but the strong arguments against it. When the scheme was introduced in 1957, we on our side of the House made quite plain that we were opposed to it. The introduction of the new Corporation Tax will, in any case, greatly change the tax background against which these corporations operate and will much reduce the benefits now derived from this scheme.

TAX ON DIVIDENDS PAID TO NON-RESIDENTS

The Chancellor of the Exchequer (Mr. James Callaghan): Under the present system, Income Tax at the standard rate is deducted from all dividends paid to non-residents; but we have had no separate dividend tax. We have, therefore, never had to consider hitherto the question what tax rates would be appropriate for dividends going abroad.
My proposals for dealing with this matter are as follows. In cases where the dividend goes to a country with which we have no double taxation agreement, I propose that the standard rate of Income Tax should continue to be deducted as it is now. In cases where we do have agreements, some limit the

rates of tax which may be deducted from dividends paid from a company in one country to shareholders in the other: others completely prohibit the imposition of any tax on dividends.
We shall, of course, honour these agreements. But we shall seek to renegotiate any agreement which we think unreasonably restricts our right to deduct tax from dividends going to overseas shareholders. This issue is especially important as far as the United States and ourselves are concerned; and we have already had some preliminary talks. These will be continued without delay.
This group of changes will correct a feature of our tax system which is working against our long-term interests and weakening our position and our ability to help others. But even after these changes have been made we can expect still to be net exporters of capital on a substantial scale. In future, those who invest overseas will need to assess more closely the return on their capital compared with the return they get on capital invested at home. The transitional relief I am proposing will give those who are in need of it a cushioning period in which to make such a reassessment.
I am very mindful of the interests of those who have for long been dependent for development capital and otherwise on us. I do not expect that the impact of the measures we are taking on the developing countries, towards whom we have special responsibilities, will be adverse to any significant degree. But I shall be watching this aspect of the question—[HON. MEMBERS: "Oh."] This is quite true. Hon. Gentlemen opposite should study where the great volume of investment capital overseas goes. I shall be watching this aspect of the question with great care and will be ready to consider whether any new action on my part is needed, for example, in the field of aid to the developing countries.
I must not leave this subject without expressing my gratitude to the representative bodies of all kinds who took up my invitation of last December to send me their comments. I have carefully studied them; and both the Inland Revenue and I have been glad to receive many deputations. I have not, I fear, been able to accept all the suggestions that have been made; but the representations greatly assisted me in reaching my conclusions.
I also wish to express my thanks to another body the Board of Inland Revenue and all the members of the Department. I deeply appreciate the work they have done in analysing the issues and helping to prepare the legislation for these massive tax reforms. And this is not the end of the story so far as they are concerned. Just as we taxpayers will need to accept the changes in the tax system, so will the taxes staff who, after all, have to operate them.
I cannot, within the limits of a Budget speech that would be tolerable to the Committee, deal with all the details of my proposals for the two new taxes. I must ask hon. Members to await the publication of the Finance Bill. But I have in mind to publish, at the same time, or as soon after as possible, two White Papers which will explain as simply as possible the effects of the various Clauses in the Bill which deal with the two new taxes.

(iii) Exchange Control

The Chancellor of the Exchequer (Mr. James Callaghan): Now for exchange control. The Committee knows that we have long had a comprehensive and effective system of exchange control covering both direct and portfolio investment in countries outside the sterling area and our current transactions with them. Of course, changes in policy and scope have been made from time to time. I have scrutinised the system again and have decided that some important changes must be made.
At present, for direct investment outside the sterling area, official exchange is allowed for certain specially favourable projects, and for the rest applicants are directed to the investment currency market or encouraged to borrow overseas. I have now decided that the criteria for the use of official exchange should be revised, and made more stringent. In future, official exchange will be made available only where two criteria are satisfied. First, the project must bring a substantial continuing return to the United Kingdom balance of payments—for example, in additional export earnings. Secondly, there must be good prospects that the overall return to the balance of payments will, within the short-term, equal or exceed the capital outflow.
In all cases where official exchange is allowed in future, or has been allowed since July, 1961, the Bank of England will call for periodic reports to show how the return actually achieved in exports or otherwise compares with the expectations, on the basis of which permission was given for the use of official exchange.
Where official exchange is not given, investment will continue to be financed as now with investment currency, or by appropriate long-term borrowing abroad. This applies to all projects, small as well as large. I hope particularly that firms planning such projects will make every effort to find the necessary finance, or as much of it as possible, by borrowing abroad.
Next, I propose some changes affecting the investment currency market itself. This is a market distinct from the official exchange market in which foreign securities can be bought and sold at a premium that has been varying recently from 7 per cent. to 13 per cent. over the official exchange rate. In the main, this market is based on trading in existing foreign investments owned by residents in this country. In addition, residents of the United Kingdom have been allowed to sell as investment currency—that is, at the premium—some other receipts of foreign currencies such as the proceeds of wills and gifts which have accrued to them from abroad. In future, these accruals will be exchanged at the official rate, and not at the premium rate, so that the foreign currency will come into the reserves instead of being available for reinvestment through the currency market. Details will be given in the usual notices issued by the Bank of England.
I also propose to end the arrangement under which investment currency is made available for the purchase of houses outside the sterling area. I do not consider it right, in present circumstances, when the balance of payments is the overriding consideration, that the proceeds of sale of remunerative overseas investments should be used for this purpose; and some reduction in the pressure of demand on the investment currency market would also be desirable. So, in future, the foreign currency proceeds of sale of houses and similar property abroad owned by residents of the United Kingdom will be earmarked as


property currency. From the pool so created property currency will be available for use by residents for the purchase of houses abroad, but no other foreign currency will be made available for this purpose. I am sure that the Committee would like to know that normally only one house per family will be permitted.
I next propose some measures to check that exchange control rules are being observed. The first concerns the receipt of payment for exports. Unless permission for extended credit has been given, exporters are normally required to obtain payments from their foreign customers within six months of the date of shipment of the goods from this country. Customs and Excise carries out sample checks to verify that this requirement is being observed. In present circumstances, I think it right that the percentage of cases checked should be substantially increased. This is being done.
It is also necessary to exercise closer supervision over the use made of foreign exchange for travel purposes. I do not propose to introduce a limit on foreign currency for genuine travel and holiday expenditure. Although this is costly, nevertheless if people work hard for 50 weeks in the year then we should not make it too difficult for them to enjoy a good holiday abroad for the other two. Of course, if they prefer to stay at home they will discover many delightful and uncrowded parts of these beautiful islands, and by saving foreign exchange will be able to make a contribution to the balance of payments. I hope that many will decide to do so, and I am sure that they will have a good holiday in Britain. I am sorry to say that there is evidence that the foreign exchange facilities for holidays are being misused by a number of unscrupulous people who are evading the regulations.
In future, therefore, the amount provided for this purpose in cash, or travellers' cheques, or the equivalent, will be recorded on the passports of travellers. Up to £250 for any one journey will be allowed on demand, as at present; and this will in no way inconvenience the genuine holiday maker. But anyone purchasing more that this in any year will be asked to provide evidence to the Bank of England that the funds are

required for genuine travel expenditure, and are not being accumulated for any other purpose. The amount of sterling notes which travellers may take out of the country and exchange abroad is being reduced from £50 to £25 a journey, and certain other modifications are being made in travel facilities.
Finally, I have decided to make a change designed to bring into the reserves some part of the proceeds of the sale of non-sterling currency securities held by residents of the United Kingdom. Under present exchange control rules, when a resident of the United Kingdom acquires foreign currency by selling foreign securities abroad, he is allowed to reinvest the whole of this foreign currency in other foreign securities, or to sell it at a premium on the investment currency market.
In future, with a few exceptions, a resident who sells foreign securities abroad will be required to exchange into sterling at the official rate the equivalent in investment currency of 25 per cent. of the proceeds of the sale. So he will continue to get the premium for 75 per cent. The investment currency to be exchanged may be provided either out of the proceeds of the sale of foreign securities, or by a purchase of investment currency in the market. Provided that the equivalent of 25 per cent. is exchanged in this way at the official rate, the proceeds of sales of securities abroad will continue to be available for reinvestment abroad in approved investments or for sale as investment currency.
The principle of exchanging 25 per cent. at the official rate will apply, in general, to all transactions which could give rise to investment currency, including those settled in London for sterling. It will apply to sales of direct investments outside the sterling area. But there will be special provision for exempting jobbers and financial institutions in respect of operations involved in making a market in foreign currency securities. The new arrangements will come into force immediately. Details will be made known to the Treasury and the Bank of England.
The broad effect of the change will be to bring into the official reserves 25 per cent. of the proceeds of all sales by United Kingdom residents of non-sterling securities and direct investments. This will help to strengthen sterling.
Total private portfolio holdings of foreign securities will be to some extent diminished, because of the diversion to the reserves from the investment currency market of the equivalent of 25 per cent. of the proceeds of all sales. But the capital value of private holdings of portfolio securities has greatly increased over the years. At the same time, we have been adding to our total stock of private investments outside the sterling area by the provision of official exchange for certain direct investments. We shall be continuing to allow official exchange for direct investments which meet the criteria. that I have already outlined. We shall be the better able to do this by reason of the measures I have just announced.

(iv) External Capital Account: Summary

The Chancellor of the Exchequer (Mr. James Callaghan): I said at the beginning of my statement that I intended to get an improvement in the external capital account of £100 million a year. I estimate that the reserves will benefit by £50 million a year from the exchange control measures, apart from the 25 per cent. arrangement. The benefit from this is more difficult to estimate but it may well produce more than £50 million a year, making £100 million at least.
Furthermore, there will be a contribution to the balance of payments from the Corporation Tax. This is not easy to quantify because of the number of unknown factors, and the delayed impact —for which I shall myself be responsible—of some of the provisions. But it may well be that the tax reaching the Revenue from companies with overseas income will ultimately be increased by something of the order of £100 million a year. While it is not possible to put a figure on the balance of payments effects, I think that it is clear that it will bring a marked benefit to our external account.

BUDGET ACCOUNTS

(i) Form of the Financial Statement

The Chancellor of the Exchequer (Mr. James Callaghan): So much for the external capital account. I now turn to the Financial Statement.
I have made a reform here. The right hon. Gentleman the Member for Barnet (Mr. Maudling) will recall that the last Government had been considering

for some time a change in the form of the Exchequer Accounts. Hon. Members will already have noticed that the Blue Paper has a new look. When they get the Financial Statement, which will be available at the end of my speech, they will find that I have set it out on new lines.
They will see that I have rearranged the contents and revised the tables so as to bring out in a clearer and more meaningful way the nature of the transactions involved in the Budget. A statement of the cash position of the Exchequer in the past year, and in the coming year, before and after the Budget changes in taxation, is now presented more simply than before. I have revised the concept of "the line" and have made it less prominent. It sometimes seemed to acquire an almost mystical significance. In order to correct the emphasis which was placed on Exchequer borrowing regardless of its purpose or composition, I have divided the loans from the Consolidated Fund to show separately the loans to industry, both nationalised and private, which are a considerable part of Exchequer lending. It can not be construed in quite the same way.
Secondly, I have taken a step forward by adding a new table which shows the economic or national accounts classification of central Government transactions. It thus makes clearer than before how the transactions which enter into the Budget are related to the economy as a whole. This will be of increasing importance as Government planning develops. For some years the Financial Secretary's Memorandum on the Estimates has classified Supply expenditure in this manner. The rest of the accounts are now brought in and the Financial Statement indicates how this new classification and the cash statement are tied together.
I hope that the Committee will welcome these changes, which shed a truer light on the transactions with which the Budget is concerned. The essential information previously available is still there; but it is presented in a more helpful manner with, in addition, the economic classification. I may add in passing that rearranging figures will not solve our budgetary problems, but


the new arrangement puts the problems into a more realistic framework, and at least does not make them appear worse than they are.
The tables in the Financial Statement are in no sense statutory, and their form can be changed by the Government at will; but it will still be necessary to publish statutory accounts in the old form in accordance with legislation passed nearly a century ago. It is obviously not convenient to perpetuate two forms of account, and if the revised form now used in the Financial Statement commends itself generally we intend to introduce amending legislation in due course to revise the form of the statutory accounts.

(ii) Exchequer Outturn 1964–65

The Chancellor of the Exchequer (Mr. James Callaghan): In giving the Exchequer outturn for 1964–65, I use the new classification throughout. Total revenue at £8,157 million produced £155 million more than the Budget Estimates after allowing for the effect of last November's measures, mainly on Customs and Excise receipts, where the yield from most of the main heads of revenue has exceeded the estimates. Expenditure, at £7,713 million was £79 million below the Budget estimate, largely because of lower spending on defence and agricultural support.
Thus a surplus of £444 million was available to finance the loans from the Consolidated Fund, which were £830 million; and the Exchequer borrowing and special transactions, therefore, were £386 million.

(iii) Exchequer Prospects 1965–66

The Chancellor of the Exchequer (Mr. James Callaghan): Next, the Exchequer prospects for 1965–66, again on the new classification. My estimates of revenue assume that the temporary import charge will yield £138 million. I have allowed here for the reduction to 10 per cent. in the rate of the temporary import charge; and the estimate of £138 million represents what I should expect to receive if the import charge remained at 10 per cent. for the rest of the financial year. But no deduction can or should be drawn from that about further changes in the rate of the import charge. All I can say now is that we shall reduce and then abolish it as soon as our external

position permits. Taking this into account, the taxes which I imposed last November are now estimated to yield £284 million. This, together with the normal buoyancy of the revenue and some changes I shall mention later, is estimated to give an increase of £705 million, or 8·6 per cent. on last year's receipts, a total revenue of £8,862 million at present rates of taxation.
I put total expenditure at £8,482 million, an increase of £690 million on last April's Budget estimate. This covers both the Supply services, of which I spoke when the Vote on Account was presented, and the Consolidated Fund standing services. I must add that £90 million more is provided for interest on the National Debt; but two-thirds of this is offset by additional interest receipts on Exchequer loans from the Consolidated Fund.
I therefore estimate my surplus at present rates of taxation at £380 million. This compares with last year's estimated surplus of £88 million. The realised surplus was £444 million.
The loans from the Consolidated Fund were estimated in the White Paper, formerly called the Below-the-Line White Paper, at £1,228 million net. Of this total £743 million is for nationalised and private industry; and £320 million is for local authorities. This compares with £209 million in 1964–65, because local authorities are being given more access to the Public Works Loan Board, so lessening their demands on the market.
Against this lending requirement of £1,228 million, I have a prospective revenue surplus of £380 million on the basis of existing taxation. The requirement for Exchequer borrowing and special financing transactions would then be £848 million.

(iv) Savings

The Chancellor of the Exchequer (Mr. James Callaghan): I now turn to the subject of savings. Nineteen sixty-six is the jubilee year of the Savings Movement; but this is in one sense a sad prelude to that occasion. Successive Chancellors, in their Budget statements have paid deserved tributes to Lord Mackintosh, who, since 1948, had been Chairman of the National Savings Committee. To me falls the sad duty of speaking of his death. He told me shortly before he died that he


had worked with no fewer than 12 Chancellors of the Exchequer. As the Committee knows, he had become the inspiration of the Savings Movement. His death has removed an outstanding public servant. One of the great strengths of this country is that we are well blessed with men and women who, without thought of reward, but from a sense of public duty, are ready to devote themselves continuously to the service of their fellow citizens. I am sure that the Committee would wish to join me in paying tribute to the memory of Lord Mackintosh. [HON. MEMBERS: "Hear, hear."]
I should like to express my thanks to all the voluntary workers who labour so hard in the cause of National Savings. In particular, I thank those employers who offer savings schemes to those employed in their firms for regular investments in National Savings securities. About 50,000 groups already exist in industry. I hope that more will be established. The last year was again a good one for National Savings; the total amount invested increased by £316 million. It now stands at about £8,380 million.
I am glad to say that I have been able to find a worthy successor to Lord Mackintosh. My invitation to become Chairman of the Movement has been accepted by Sir Miles Thomas. His energy and leadership are well known to us all and, with Mr. Archer, in Scotland, the Savings Movement will continue its great work. One change is being made in regard to the Movement in Scotland. What has in the past been called the Scottish Savings Committee will, in future, be known as the National Savings Committee for Scotland. I hope that this change will remove any misunderstanding there may be about the status of the Scottish Committee.
I have been considering the scope of our National Savings facilities. I do not consider that any change is needed at the present time in the terms of the existing National Savings securities. But I have been reviewing a number of suggestions for new types of savings facility. One of them is that of a unit trust run by the Government or a Government agency, and available to subscribers through Post Offices. This is an interesting idea, which

has many attractions. But I do not propose that we should embark upon it at the present time, since the Post Office will be busy with another scheme which I now wish to announce.
This scheme is a new departure in Government savings. It concerns the Post Office Savings Bank, the most familiar and widely used of all our facilities for small savings. The Bank offers an unrivalled service for the ready deposit and withdrawal of money by millions of people who maintain accounts with it. Ever since its inception, over a century ago, the rate of interest paid on Post Office Savings Bank accounts has been 2½ per cent. The time has come when those who deposit with the Post Office more than small amounts should be offered the possibility of a rate of interest higher than 2½ per cent.
Accordingly, the Government have decided to introduce a new form of account at the Post Office Savings Bank which will be open to anyone who maintains a certain minimum balance in an ordinary Post Office Savings Bank account and is prepared to give at least one month's notice of withdrawal. It will be called an Investment Account and the funds placed in such accounts will be invested in Government and local authority securities. The rate of interest paid to depositors will he related to the current yield of those investments. In the conditions of today the rate would probably be about 5 per cent. One advantage of the scheme will be that as it grows, as I hope it will, new funds will become available from this source of investment with local authorities. A similar scheme is at present operated by the Trustee Savings Banks.
Legislation will be needed. My right hon. Friend the Postmaster-General will introduce this and give further details of the scheme in due course. Partly because of the need for legislation, it is bound to be a little while before the scheme can be brought in; but we shall press ahead with it as rapidly as possible. These Investment Accounts will be a valuable supplement to our range of investment opportunities for the small and smallest saver, and I emphasise, once again, that the need for additional savings is very great if we are to finance the modernisation and reconstruction of our nation.

PUBLIC EXPENDITURE

The Chancellor of the Exchequer (Mr. James Callaghan): I now come to public expenditure. Both in my statement of 22nd February and in my opening remarks todays I have made it clear that it is our intention to plan the use of economic resources and to control the growth of public expenditure so that the right balance of economic and social priorities can be duly secured. The control of public expenditure will therefore be used positively as well as negatively. The Government have decided that the growth of public expenditure between 1964–65 and 1969–70 will be related to the prospective increase in national production. In the Government's present judgment this means limiting the overall increase in public sector expenditure excluding the investment of the nationalised industries, and taking one year with another, to 4¼ per cent. a year at constant prices. We are examining the whole of public expenditure again in order to determine a proper order of priorities and to control waste.
In the field of defence, reviews are being conducted to ascertain the changes that would be required to contain expenditure at roughly the 1964–65 figure in real terms. One of the most serious aspects of this problem is the growth of overseas military expenditure. This includes maintaining our troops in Germany, the Middle East and the Far East. Since 1959—I ask the Committee to note these figures—this total has gone up year by year without let or hindrance from about £175 million to over £300 million, including defence aid. These payments across the exchanges constitute a serious drain on our balance of payments. A reduction in them depends upon others as well as ourselves, but the economy badly needs some of the foreign exchange resources absorbed by the defence programme; and the Government intend to secure a reduction in the existing burden.
Altogether, about 1½ million men and women are employed in the Forces and in industry to supply them. These are important and scarce resources of manpower, needed for industrial expansion and for exports. It is against this background that the Government have had to consider the future of the TSR2 project. My right hon. Friend the Secretary of State for Defence hopes to catch your eye later in the debate this evening, Dr. King,

in order to make a full statement about the Government's policy and its decision to cancel the project.
The effect of this decision is to save £35 million of Government expenditure in 1965–66, after taking account of the terminal costs which may become due to be paid this year. For technical reasons this saving appears in the accounts as an increase in receipts. We all admire the technical skill that has been put into this advanced aircraft. [HON. MEMBERS: "0h."] Hon. Members opposite may speak for themselves. But, so far, this aircraft has cost £125 million, and the cost is mounting fast every week. It has, and would have, diverted hundreds of factories employing thousands of skilled and semi-skilled men from other work of national importance, including exports in particular. This is not a sensible use of our overstrained resources. The Government's decision will, in the next five years, release £350 million of resources of an advanced kind for more productive work.
On expenditure in industry, my colleagues" statements in the last few days about postal charges, railway closures and agricultural support demonstrate our policy—and we do not intend to be moved from it—that these industries should continue to increase their contribution to the national economy. Where we believe that Government expenditure can have a constructive and fertilising effect on industry, we have shown ourselves ready to make the money available. In education, in health, in social security and in housing we are engaged in arranging our priorities so that we can get the best combination of programmes and the best value for money within the expenditure which can be devoted to these purposes.
Side by side with this is the review of local government finance which is going on, which will enable us to decide how the expenditure on the public services can best be shared between central and local sources of finance. It is no easy matter to reshape public expenditure in a short time and we must look further ahead than just the current year if we are to make a real impact on these expenditures. But I commend to the Committee, and especially to my hon. Friends, the words of Robert Owen:
Beneficial changes can alone take place by well digested and well arranged plans temperately introduced and perseveringly pursued.


I know only too well, as my predecessors did, of the pressure for higher pensions and for better pay; and I do not need to recall to any hon. Member the recent outcry about the state of some of our schools, the condition of some of our hospitals and the wretchedness of some of London's housing. My earnest wish is to see the nation freely and willingly devoting the necessary resources to satisfying the simple needs of ordinary men and women—a home to live in, a school to learn in, a hospital when we are sick and a modest living for the elderly. But the fulfilment of these plans jostles against the need for a healthy balance of payments as well as the desire by all of us as individuals for an increase in our own personal standards of living.
For the reasons which I gave at the outset, in 1965 first priority must be given to balancing our overseas payments. I have already indicated the manner in which we are setting about this. Until we get this, we shall need to contain the rise in private expenditure. For the rest, a healthy balance of payments is necessary to enable the economy to grow at a steady pace. Our most important task is to reconcile faster growth with a satisfactory balance of payments. We look to the economic plan which is now being prepared to co-ordinate the conflicting claims made upon our resources by private expenditure, social expenditure, defence and industrial investment; and also to stimulate the economy into greater efficiency and productivity.

THE LONGER-TERM PLAN

The Chancellor of the Exchequer (Mr. James Callaghan): I must, therefore, say a word about the economic plan. I shall not trench on the speech of my right hon. Friend the First Secretary of State, who will be saying more tomorrow about the policies which he is working out to achieve our long-term objectives. But there are three points I must briefly make now, as they are intimately bound up with my Budget.
First, in the Government's view, a Budget conceived and operated as the most immediate instrument of long-term objectives can and should make a great positive contribution to them. They are the counterpart of my Budget strategy and, coupled with them, the Budget itself can give the economy an aggressive forward thrust.
Secondly, the way to put the economy on a progressive and sound footing, with

resources effectively and profitably employed in the right places, thus avoiding "stop-go", is to have proper planning., This must identify the points where openings for faster industrial growth are greatest and where resources can most effectively be redeployed. It must also cover incomes policy as an essential means of getting fairness and of keeping our costs in line.
Thirdly, we must within a short period shift resources into activities which assist the balance of payments. The Government cannot accept that our task is complete when room has been made for what is required, in the hope that the results will somehow or other seep through into exports. We have had enough of that process in the past decade. Our aim now and in the longer-term is to establish an orderly and articulated policy designed to move as rapidly as possible sufficient resources into improving our trade balance. In order to do both this and to achieve faster economic growth we must redeploy resources in a positive way.
The decision to cancel the TSR2 is an earnest of this determination. Although there will be a significant number of redundancies in the aircraft industry, employment conditions generally are at the moment very favourable. There is an intense demand for highly skilled men of the kind who are working on this project, as has been shown by the eagerness of employers to recruit the men who have been released by our earlier aircraft decisions. Naturally, the fullest consultations with the trade unions and management are taking place. My right hon. Friend the First Secretary of State and other Ministers will be ready to act so as to ensure that there is the least possible delay in absorbing all who become redundant into employment where they will contribute to exports and the growth of the economy.
An essential condition for redeployment is a proper system of redundancy payments on a national basis. As the Committee already knows, my right hon. Friend the Minister of Labour has introduced a Bill to provide for this purpose. I can give some small help in this. Payments of this kind are at present taxable as ordinary earnings where the employee has a contractual right to them. I propose at a later stage of the Finance Bill,


if progress with the Minister of Labour's Bill warrants it, to provide that payments under his Bill—which will be lump sum payments—will be freed of this liability to tax. This tax-free scheme will make a significant contribution to the redeployment of manpower.
Again, I can help with regional policy. This is a key element in the planning of the Department of Economic Affairs and the Board of Trade. It will correct distortions in the pattern of development in the country, bring into use neglected resources, and remedy the economic waste and social hardships which this country can neither afford nor tolerate.
I propose to give a special measure of assistance to local authorities in the less prosperous areas or, indeed, in entire regions. My right hon. Friends the First Secretary of State, the President of the Board of Trade and the Minister of Housing and Local Government will be considering the areas to benefit from the concession. Until recently, all local authorities were able to get 20 per cent. of their long-term borrowing, or up to £100,000, whichever was the greater, from the Public Works Loan Board. I recently decided to raise the 20 per cent. to 30 per cent. I now propose that authorities in the areas eventually selected should be allowed to anticipate the arrangements which we hope to introduce later for all authorities and should be able to get up to 50 per cent. of their long-term money from the Public Works Loan Board this year. I am at present allowing for this purpose a further £40 million for Exchequer loans to local authorities, bringing the net total to £360 million.
This is money which the local authorities would otherwise have had to borrow on the market, and the change does not, therefore, make new demands on our resources.

Sir William Robson Brown: May I ask one national question? In view of the cancellation of the TSR2, do the Government propose to buy the American TFX instead?

Mr. Callaghan: I have already told the Committee that my right hon. Friend will be speaking later this evening if he catches your eye, Dr. King. I think that it would be for the convenience of the

Committee that I should proceed with the economic aspects. I would only say, in passing, that it would be wrong to isolate this as a military question. It is both an economic question and a financial question.

Sir Alec Douglas-Home: Because it is an economic question and financial question, and as the right hon. Gentleman has told the Committee that he expects to achieve savings from the cancellation of the TSR2, is it not right that we should know what will be put in its place, if anything?

Mr. Callaghan: Of course, it is right that the Leader of the Opposition and the Committee generally should know. I hope that they will not feel that it is an undue inconvenience to wait from five o'clock until seven o'clock.

ECONOMIC ASSESSMENT

(i) Short-term Management of the Economy

Mr. Callaghan: I come now to the immediate task of the Budget—the short-term management of the economy. This is the essential means of creating the conditions in which we can right the balance of payments.
I start from the encouraging signs of improvement which have shown themselves in the last few months. Exports have been rising: in the three months December-February they were 6 per cent. higher than in the previous three months. Imports have come down a little, and thus the balance of trade has improved considerably.
Moreover, there are forces at work which should bring some further improvement in the foreign balance. For example, stockbuilding is unlikely to be as high as it was in 1964, and the steps we took last autumn have had, and will continue to have, an effect in redressing the balance. So quite apart from this Budget, measures already taken mean that we can expect a considerable improvement on last year.
But we cannot leave the position there. We are still in deficit on current and long-term capital account. I should like to give the Committee an idea of the scale of what has to be done. We need, first, a rise in the value of exports of


more than 5 per cent. a year. That is higher than the average rate of growth in the past. But the export rebates, additional credit facilities, and, above all—I hope that other hon. Members share my experience in this matter—a new awareness among manufacturers of what needs to be done, can and will help us to achieve this target.
Secondly, we must slow down the recent trend towards increased dependdence on imports. A rise in our imports of manufactures is normal and healthy in the present phase of world trading relationships, but for one reason or another we have been engaged in a buying spree from abroad on a scale which we cannot afford. For the time being, the temporary import charge is holding this in check. But the charge was never intended to be anything but a stopgap. We have to look forward to the time when it will have been removed: and when that time comes our home production will have to be sufficiently competitive to rule out any possibility of excessive imports.
The prospects for world trade are not unfavourable to our objectives. There is good reason at present to expect a continuing increase in world activity and in the demand for our exports. The rate of increase may not be quite as rapid as it has been in the recent past, and, in particular, the sterling area may be somewhat less buoyant. But, with few exceptions, the economies of the industrial countries are expanding healthily. There are possible threats to the continuing growth of liquidity to sustain international trade. But I am glad to say that these threats have not so far been reflected in the adoption of internal policies which check the growth of activity and trade, and I am confident that international co-operation and understanding of these matters has reached the point where that will be avoided.
The opportunities therefore exist for a substantial growth of exports. An increase of more than 5 per cent. in value is a considerable challenge, but it is within our reach. The question is whether the resources will be there to provide for an increase in exports of this order. This depends on the likely movement of home demand. The upsurge

in fixed investment which has been the main factor stimulating the economy in the last two years is expected to go on. The Board of Trade surveys of the investment plans of private industry showed an expected rise from 1964 to 1965 of 10 per cent. in both the manufacturing sector and the distributive and services industries sector. In the nationalised industries, and in the public services such as education and roads, there are programmes which provide for steady expansion in the period ahead. In housing, construction by public authorities is increasing and the indications we have of private building also point to further growth. We must, therefore, expect that the growth in investment in total will continue strongly this year: though looking farther ahead, I must take into account on the other side that the rate of increase in private industrial investment may ease off in late 1965 or early 1966.
We thus have a buoyant immediate prospect for investment, which is always one of the main forces governing the level of activity in the economy.
Turning to the other items of demand, I expect a steady increase in current expenditure on goods and services by public authorities. It is true that the growth of personal consumption will be to some extent restrained by the measures announced last autumn. But in conditions of high activity there would be some moderate growth. Investment in stocks, which is always a most uncertain item, will probably be lower than last year, but much of the effect of this would be on imports and only a part on home production. Finally, because of the import charge there will be a tendency for British industry to supply a bigger share of total demand than before. This also works to raise the pressure on our resources.
We have to consider what would be the position if, superimposed on these movements in home demand, there was a rising trend of exports on the scale that I have said is necessary to achieve the improvement we must have in the balance of payments. The answer I give is that the economy could not meet all these demands. Although there is some slack in some regions, industry


generally is already working at high pressure. Unemployment is now below 1½ per cent. and order books in many industries are long. I am confident that productive capacity will grow as new investment and new techniques bear their fruits. But we must ensure that the extra output can go to correct the foreign balance and is not all pre-empted by expanding home demand.

(ii) The Budget Judgment

Mr. Callaghan: In deciding what to do, it is necessary to recognise that budgetary action has a cumulative effect on demand, beginning gradually and then multiplying. Taking the early months of next year as my period of reference, I have concluded that we must act so as to reduce home demand in that period by £250 million at an annual rate. Towards this objective I have the cancellation of the TSR2, which will reduce expenditure by £35 million in 1965–66. My task is also lightened by the increase in postal charges of £32 million in 1965–66 announced by my right hon. Friend the Postmaster-General. This leaves me with the need for a substantial increase in taxation.
My proposals involve, in total, increases amounting to £164 million in 1965–66 and £217 million in 1966–67. Taking into account the nature and incidence of these increases, my estimate is that, working with the other measures I have mentioned, they will bring about the desired reduction in home demand and so make room for a progressive improvement in the balance of payments. These measures can of course be modified at any time, one way or the other, by adjustments of fiscal and monetary policy.
The Committee is only too well aware that we have a Bank Rate of 7 per cent., and that following the letter from the Governor of the Bank of England to the London Clearing and Scottish Banks last December a tight and effective control over bank lending is at present in operation. I should, of course, take further measures to reinforce this control if it were to prove necessary. But, taking the position as I see it today, I expect to see some easing of home demand as the year progresses, so that a big drive for export orders from now

on could have a very marked effect by next winter. Exports should improve during 1965 and with a real effort from industrial managements and salesmen we should make a big stride forward in our export trade in 1966.
The Committee will recognise the difficult choice I have had to make. This is a field where there are many uncertainties—I know only too well about using last year's Bradshaw—and where there are risks on either side. On one side, I have to remember that, despite the recent improvement, we are still in deficit on our overseas current and capital payments and we also have substantial loans still to repay. We must, therefore, get a sustained improvement in the balance of payments. We must make resources available and we must avoid excessive pressure on costs. In our own interests—and those of other countries—we cannot run risks.
On the other side, the Committee will recognise that action to reduce purchasing power now increases the risks that at some future time demand will fall too low. Yet we must not plunge industry back into the atmosphere of restriction and gloom that hung over it for a long time because of the measures taken in 1961. Nor must we destroy the newfound feelings of confidence and buoyancy in less prosperous areas such as Scotland, the North-East and Wales. Therefore, I emphasise when taking this budgetary action that we adhere to our policies of steady economic growth. The task is not to secure the under-employment of our resources, but their redevelopment in more rewarding fields of activity.

TAX CHANGES

Mr. Callaghan: In selecting my tax measures to raise the revenue I have kept three considerations in mind. First, it would be shortsighted to select industrial production for particular damping down as this would affect and interfere with the expansion that we wish to see. Secondly, I have sought to avoid action that would blight the prospects of the development districts which need continuing encouragement in order that they may absorb their unused margin of manpower and resources. Thirdly, I have tried to avoid taxing necessities, although I realise that there will be a difference of view about what


constitutes a necessity. This limits my range of options very considerably.
Perhaps I may say, in passing, that I have been much obliged to all those who have sent me suggestions for raising the revenue. Alas, most of those frequently suggested, such as taxing one-armed bandits and bingo, would not raise the revenue I need. To use an old Welsh collier's phrase, they are no more than "chips in broth".
As for betting generally, I am not proposing to introduce a new duty this year. I know that there is a great deal of feeling that all betting and other forms of gambling should be subject to taxation; but, like my predecessors, I have found great difficulty with this matter. I shill continue to work on the idea; but I am particularly anxious that if we are to have a comprehensive tax it should be levied in such a way as to ensure that avoidance on a significant scale would not occur, and so bring the tax into disrepute.
And so I come to my remaining proposals.

(i) Renewal of the Regulator

Mr. Callaghan: I propose to extend for a further year, the power given to the Treasury to vary the Customs and Excise revenue duties and Purchase Tax, if the national economy should require it, by means of the regulator.

(ii) Purchase Tax Valuation

Mr. Callaghan: I shall propose a minor amendment in the law relating to the value of goods for purchase tax purposes. Tax has always been charged on the full value of goods so that there has been no fiscal anomaly where copyright is separately paid for. A recent decision of the House of Lords has shown that cases may arise where this practice is not fully covered by the existing law; and I am taking this opportunity of bringing within the law payments which, until the recent judgment, had always been thought to be within it.

(iii) Allowances for repairs

Mr. Callaghan: I propose to correct a technical flaw in the transitional provisions about Case VIII of Schedule D, under which agricultural landowners can, in effect, get a double allowance for the same expenditure on maintaining their property.

(iv) Advances to Northern Ireland

Mr. Callaghan: The Finance Bill will include a Clause increasing from £40 million to £70 million the limit on advances from the United Kingdom Consolidated Fund to the Northern Ireland Exchequer. These funds are made available to finance loans to various public bodies in Northern Ireland, especially local authorities and the Electricity Board of Northern Ireland. In part, this measure corresponds to the facilities for financing local authorities in Great Britain, but in addition it reflects the plans for economic development in Northern Ireland. A Procedure Resolution and a Financial Resolution will be moved in connection with this clause.

(v) George Cross

Mr. Callaghan: I am glad to propose an exemption from tax for the annuity which is now to be paid to holders of the George Cross.

(vi) Vehicle Excise Duties

Mr. Callaghan: I now come to a major tax proposal. I have seen many statements in the Press and elsewhere to the effect that I shall be increasing the Purchase Tax rates on motor cars. This is very productive of revenue and I have considered it carefully. Representatives of the motor vehicle industry have called on me, and I have listened to what they had to say. I have come to the view that the domestic market for cars will not be so expansive this year. I have, therefore, decided not to increase the Purchase Tax on cars. I hope that the nation will be rewarded by a substantial increase in the volume of motor vehicle exports in 1965.
In these circumstances, there is a clear case for looking to the vehicle Excise duties. The existing rate of duty on a private car is in money terms now only half as much again as that for a 10-horsepower car in 1921, and the same as that for a 15-horsepower car; in real terms the rate of the duty has, of course, fallen a long way.
The Buchanan Report on Traffic in Towns, published in 1963, estimated that over the following 10 years the number of motor vehicles in Great Britain would double. In five years" time there may well be something approaching 18 million vehicles on our roads, including


12 million cars. It will bring great benefits to many, but it is also bringing serious problems in its wake: congestion, delay and inconvenience, the need for new large-scale investment in roads and urban re-construction, and the "social costs" of the motor age.
I believe that it is right, in these circumstances, to ask motorists to make increased contributions to general revenue, and I therefore propose to increase the rate of duty on cars from £15 to £17 10s. a year. For the national average mileage, about 7,500 miles a year, the extra cost will work out at less than a tenth of ld. a mile.
I think that there is a case for introducing a differential system for charging duty on cars. As it stands this duty, unlike the duties on goods vehicles, is not graduated but is charged at a flat rate. I intend to look into the possibility of creating a new differential system for cars; but there are serious problems to overcome. There is, of course, no question of going back to the discredited horsepower system. While this possibility is being looked into, I am proposing a moderate flat rate increase of £2 10s.
I propose to simplify the schedule of rates for motor cycles, three-wheelers and pedestrian-controlled vehicles. Motor cycles will now pay £2, £4, or £8 a year, according to engine capacity, but there will be no extra charge on side-cars.
Then there are goods vehicles. The rates for these have increased by only 20 per cent. in money terms since 1933. There is a strong case for adjusting the charges, taking into account that in real terms they are now so low compared with before the war. I therefore propose a general increase of 50 per cent. in all the rates on good vehicles and associated vehicles.
I am also taking this opportunity to make a considerable simplification in the schedules of rates on goods vehicles. The present seven scales will be reduced to three: normal goods vehicles, farmers" goods vehicles, and a general concessionary schedule. I am not proposing any increase in the rates of duty on buses or hackney carriages, in view of the special problems facing the bus operators.
The Finance Bill will contain provision to enable the Ministry of Transport to

make grants to bus operators for the costs incurred on stage services as a result of the 6d. increase in the hydrocarbon oil duty I announced in my autumn Budget. This legislation follows discussions with the industry with whom this method of operating the scheme of relief has been agreed. A Financial Resolution will be required.
The Finance Bill will also contain three minor changes in the law relating to vehicle licences—the first for administrative reasons, and the other two to put right anomalies in the existing law.
The rise in the operating costs of goods vehicles per capacity ton mile resulting from these changes in the licence duties will be small—ranging from 2 per cent. to 4 per cent. The effect on export costs will be small; but these duties are among those taken into account in calculating the export rebates, and any adjustments which are necessary will be made after time has been allowed for the renewal of vehicle licences at the new rates.
These increases, which will come into effect tomorrow, will yield £48½ million in 1965–66, and £54 million in a full year. The increases on private vehicles will raise the retail price index by less than a twelfth of a point.
I turn now to direction taxation.

(vii) Renewal of Surtax

Mr. Callaghan: It is necessary to renew the Surtax rates and I propose that Surtax for 1964–5, that is the tax payable on 1st January, 1966, shall be charged at the same rates as for 1963–64.

(viii) Cost-Rent Housing Associations

Mr. Callaghan: The Milner Holland Report has emphasised that non-profit-making housing associations could make a greater contribution than they do at present both to the building of new houses and to the improvement and management of old houses in London. It has also pointed out that they labour under certain tax disabilities. I think it right to encourage these associations whose purpose is to provide houses to let at reasonable rents. The Finance Bill will accordingly include a provision giving power to the Housing Ministers to repay to these associations the amounts of Income Tax and Profits Tax for which they are liable. This


power will cover also the repayment of any liabilities they may have for Corporation Tax. The cost in 1965–66 may be about £1 million, although it will rise substantially if, as I hope, the number of houses built by such associations grows rapidly in future years. A Financial Resolution will be required.

(ix) Age exemption limit and dependent relative allowance

Mr. Callaghan: In my autumn Budget I promised to consider whether to raise the income limits for the Income Tax age exemption this year. At present, single people over 65 are exempt from Income Tax if their income does not exceed £360 and married couples at that age if their income does not exceed £575. I propose to raise the income limits for this special exemption to £390 for single people and £625 for married couples. I also propose, as I said last November, to increase the dependant's income limit for the full dependent relative allowance by £30, to £210, and to make a corresponding increase to £285 in the upper income limit at which no allowance is due. The cost of giving this help to those in need of it will be £5¾ million in 1965–66 and £9¼ million in a full year.

(x) Abolition of National Insurance contribution allowance and increase in personal allowance

Mr. Callaghan: The allowances given for a person's own National Insurance contributions relate primarily to the pension element in them. The effect is to make the National Insurance contribution regressive, because the contributor who is not liable to Income Tax bears the full brunt of his contributions while the better off have the impact reduced by tax reliefs, including Surtax reliefs. I propose to abolish the tax allowances for these contributions.
To withdraw the allowances completely without giving any alleviation elsewhere would be unreasonable. I propose, therefore, to couple with this reform an increase of £20 in the basic single and married allowances and in the special Income Tax allowance which is given against the earnings of a married woman. For the great majority of taxpayers who have been entitled to an allowance for National Insurance contributions of £22 the increase in tax will be a matter of shillings a year. Some men whose allowances have been £26 or £27 will pay a little mere; but there are many people whose

National Insurance contribution allowance is at present below £20 who will gain.
Surtax payers will pay more Surtax because the former National Insurance contribution allowances ran for surtax as well as Income Tax. But married women and widows in employment will benefit from the increases in personal allowances, as will retired people who do not pay National Insurance contributions. This will help elderly people, as will raising the income limits for the age exemption. This is a better way of doing this operation. The proposals, taken together, will cost the Exchequer £2 million this year and £1 million in a full year. I put them forward as a simplification of the existing system, and as a better way than the old system of spreading the cost to individuals of National Insurance pensions.

(xi) Tobacco and alcoholic drink

Mr. Callaghan: Finally, I come back to indirect taxation. As I am anxious to avoid taxing necessities, I have decided that tobacco and alcoholic drinks should make a further contribution.
I propose to raise the duties on tobacco by 10s. a lb. This will mean an increase of 6d. in the price of the packet of 20 plain cigarettes, which now sells at 4s. 11d.; and 5d. for 20 on most other cigarettes, except the packets of small filter-tipped which now sell at 3s. 2d., where the increase will be 4d.
I propose to raise the duty on spirits by £1 14s. 6d. a proof gallon. This increase will be equivalent to 4s. on a bottle of whisky or gin. I propose to increase the wine duties by 6s. a gallon for fortified wines and 3s. a gallon for table wines, equivalent to Is. and 6d. a bottle respectively. There will be consequential alteration's in the duties on British wine. I propose to raise the beer duty by Id. a pint.
All these increases in duty will come into force tomorrow. I congratulate hon. Members on their forbearance.
These increases may well result in some falling-off of consumption, especially, I think, of tobacco. After allowing for this, I estimate that the additional revenue in a full year will be £127 million: that is, £75 million from tobacco, £19½ million from spirits, £6½ million from wines and £26 million from beer. The revenue in the current year will be slightly less, at about £123 million.

SUMMARY

Mr. Callaghan: The changes in taxation which I have just announced will have the effect in a full year, which for present purposes I take as 1966–67, of increasing revenue receipts by £217 million. In 1965–66, the increase in revenue receipts will be £164 million. In addition, there is the £35 million saving from the cancellation of the T.S.R.2 and the increased postal charges totalling £32 million.
Moreover, I expect the external capital account of the balance of payments to benefit by at least £100 million, following the announcements I have made today.
The measures in the Budgets of last November and of today show the sacrifice that the British people will be making in order that we may put our economy right and repay our debts to foreign creditors.

CONCLUSION

Mr. Callaghan: I will not try to sum up a Budget as wide-ranging as this. But I should like to express in a sentence or two the thinking behind it.
I want to encourage industry to be more dynamic and productive, to reform the tax system, to get a proper return for our heavy expenditure and to be fair. I put this point to the Committee. I ask hon. Members to listen tome,

TABLE: SPIRITS OTHER THAN IMPORTED PERFUMED SPIRITS (RATES OF CUSTOMS AND EXCISE DUTIES)


Description of spirits
Excise rate
Customs rates






Full
Commonwealth
Convention



£
s.
d.
£
s.
d.
£
s.
d.
£
s.
d.


1. British spirits (per proof gallon)
14
12
0

—


—


—



2. Imported spirits other than perfumed spirits—


(a) not comprised below in this paragraph (per proof gallon)

—

14
14
6
14
12
0
14
12
0


(b) liqueurs, cordials, mixtures and other preparation in bottle, entered in such manner as to indicate that the strength is not to be tested (per gallon)

—

19
18
0
19
14
6
19
14
6



each of the above rates of duty being, in the case of spirits not warehoused or warehoused for less than 3 years, increased by Is. 6d. per proof gallon or, for spirits within paragraph 2(b) of this table, by 2s. 0d. per gallon.

because it is vital to our whole thinking. In the City I have no doubt that many people will feel it hard that capital gains should be taxed or overseas investment more strictly judged in the national interest. But I would remind them that it is just as hard for the trade unionist to accept the limitations of an incomes policy; and much harder for a miner, an aircraft worker or a railwayman to be told that his contribution is to give up his job and change to another.

The Government"s aim is not to divide our people, but to unite them in an endeavour greater than we have ever made in peace time to secure national solvency, to ensure economic progress and to secure the full fruits of the people"s industry. Rarely have I been more conscious of the country"s difficulties than I am today, and never have I been more confident of the outcome.

SPIRITS (EXCISE AND CUSTOMS)

Motion made,
1. That as from 7th April, 1965 the duties of excise chargeable under section 1 of the Finance Act 1964 on spirits, and the duties of customs chargeable under that section on spirits other than perfumed spirits, shall respectively be at the rates shown in the Table below instead of the rates shown in Table 1 of Schedule 1 to that Act.
And it is hereby declared that it is expedient in the public interest that this Resolution should have statutory effect under the provisions of the Provisional Collection of Taxes Act 1913:


In the Table above "Commonwealth" indicates goods qualifying for Commonwealth preference under section 2 of the Import Duties Act 1958, "Convention" indicates goods of Convention area origin within the meaning of the European Free Trade Association Act 1960 and "Full" indicates other goods.—[Mr. Callaghan.]

The CHAIRMAN put the Question thereupon forthwith, pursuant to Standing Order No. 90 (Ways and Means Motions and Resolutions).

Question agreed to.

The CHAIRMAN then proceeded successively to put forthwith the Question on each further Motion made by a Minister of the Crown, save the last Motion.

TABLE: BEER (RATES OF CUSTOMS AND EXCISE DUTIES AND DRAWBACKS)





Excise rates (per 36 gallons)
Customs rates (per 36 gallons)








Full
Commonwealth
Convention





£
s.
d.
£
s.
d.
£
s.
d.
£
s.
d.


1.Duty
…
…
8
11
0
9
11
2
8
11
2
8
11
2


2.Drawback
…
…
8
11
2
9
11
2
8
11
2
8
11
2








each of the above rates of duty and drawback being, in the case of beer of an original gravity exceeding 1030 degrees, increased by 7s. 3½d. for each additional degree.

In the Table above "Commonwealth" indicates goods qualifying for Commonwealth preference under Section 2 of the Import Duties Act. 1958, "Convention" indicates goods of Convention area origin within the

BEER (EXCISE AND CUSTOMS)

Motion made, and Question,
2.That—

(a) as from 7th April, 1965, the duties of
excise and customs chargeable on beer under Section 2 of
the Finance Act, 1964, shall respectively be at the rates
shown in the Table below instead of the rates shown in
Schedule 2 to that Act;
(b) as respects beer on which there have been paid duties of excise or customs at the rates shown in the Table below, drawback shall be allowed in accordance with that section at the rates shown in that Table instead of the rates shown in the said Schedule 2, but subject to the supplementary provisions as to drawbacks contained in that Schedule.
And it is hereby declared that it is expedient in the public interest that this Resolution should have statutory effect under the provisions of the Provisional Collection of Taxes Act, 1913.

meaning of the European Free Trade Association Act, 1960, and "Full" indicates other goods.—[Mr. Callaghan.]

put and agreed to.

WINE (CUSTOMS)

Motion made, and Question,
3. That, as from 7th April, 1965, the duties of customs chargeable under Section 3 of the Finance Act, 1964, on wine, including the lees of wine, shall be at the rates shown in the Table below instead of the rates shown in Schedule 3 to that Act, and shall, in the case

TABLE: WINE (RATES OF CUSTOMS DUTY)


Description of British wine








Rates of duty (per gallon)











Full
Commonwealth











£
s.
d.
£
s.
d.


Light British wine:—


Still—


not in bottle
…
…
…
…
…
…
…
…

18
6

16
6


in bottle
…
…
…
…
…
…
…
…
1
1
0

18
0


Sparkling
…
…
…
…
…
…
…
…
1
11
0
1
9
0


other wine:—


Still—


not in bottle
…
…
…
…
…
…
…
…
1
16
6
1
6
6


in bottle
…
…
…
…
…
…
…
…
1
19
0
1
8
0


Sparkling
…
…
…
…
…
…
…
…
2
9
0
1
19
0


together, in the case of wine exceeding 42 degrees proof spirit, with an addition for each additional degree or fraction of a degree of






…
…

3
1

2
3

In the above Table "Commonwealth" indicates goods qualifying for Commonwealth preference under Section 2 of the Import Duties Act, 1958, and "Full" indicates other goods; and "light wine" means wine not exceeding 25 degrees or, in the case of wine qualifying for Commonwealth preference, 27 degrees of proof spirit.—[Mr. Callaghan.]

put and agreed to.

TABLE: BRITISH WINE (RATES OF EXCISE DUTY)


Description of British wine
Rates of Duty (per gallon)











£
s.
d.


Light British wine:—


Still
…
…
…
…
…
…
…
…

16
0


Sparkling
…
…
…
…
…
…
…
…
1
2
0


Other British wine:—


Still
…
…
…
…
…
…
…
…

17
0


Sparkling
…
…
…
…
…
…
…
…
1
3
0


In the Table above "light British wine" means British wine not exceeding 27 degrees of proof spirit.—[Mr. Callaghan.]

put and agreed to.

of the rates for light wine which qualifies for Commonwealth preference, be subject to Section 3(3) of that Act as in the case of those rates shown in the said Schedule 3.
And it is hereby declared that it is expedient in the public interest that this Resolution should have statutory effect under the provisions of the Provisional Collection of Taxes Act, 1913.

BRITISH WINE (EXCISE)

Motion made, and Question,
4. That, as from 7th April, 1965, the duty of excise chargeable under Section 3 of the Finance Act, 1964, on British wine shall be at the rates shown in the Table below, instead of at the rates shown in Schedule 4 to that Act.
And it is hereby declared that it is expedient in the public interest that this Resolution should have statutory effect under the provisions of the Provisional Collection of Taxes Act, 1913.

TOBACCO (CUSTOMS AND EXCISE)

Motion made, and Question,
5. That—

(a) as from 7th April 1965 the duties of customs and excise chargeable on tobacco under section 4 of the Finance Act 1964 shall be charged at rates increased by adding ten shillings per pound to each of the existing rates, that is, those set out in Tables 1 and 2 in Schedule 5 to that Act;
(b) as respects tobacco on which there have been paid duties of customs or excise at the said increased rates, drawback shall be allowed in accordance with that section at rates increased by adding the like amount to the rates set out in Table 3 in that Schedule;
And it is hereby declared that it is expedient in the public interest that this Resolution should have statutory effect under the provisions of the Provisional Collection of Taxes Act 1913.—[Mr. Callaghan.]

put and agreed to.

PURCHASE TAX (VALUATION OF GOODS CONTAINING COPYRIGHT MATERIAL)

Motion made, and Question,
6. That it is expedient to authorise any increased
charge to purchase tax resulting from new provisions for
valuing goods consisting of or containing matter in which
copyright subsists.—[Mr.
Callaghan.]

put and agreed to.

TABLE


PART I


VEHICLES CHARGEABLE IN ACCORDANCE WITH SCHEDULE 1


Description of Vehicle
Rate of Duty




£
s.
d.


1.
Bicycles of which the cylinder capacity of the engine does not exceed 150 cubic centimetres, or which are electrically propelled
2
0
0


2.
Bicycles of which the cylinder capacity of the engine exceeds 150 cubic centimetres but does not exceed 250 cubic centimetres; tricycles, and vehicles (other than mowing machines) with more than three wheels, being tricycles and vehicles neither constructed nor adapted for use nor used for the carriage of a driver or passenger
4
0
0


3.
Bicycles and tricycles not in the foregoing paragraphs
8
0
0

SURCHARGES AND REBATES IN RESPECT OF REVENUE DUTIES

Motion made, and Question,
7. That the period after which orders under
section 9 of the Finance Act 1961 may not be made or
continue in force shall be extended until the end of August
1966.—[Mr. Callaghan.]

put and agreed to.

VEHICLES EXCISE DUTY (INCREASE)

Motion made, and Question,
8. That in the case of licences taken out after 6th
April 1965—

(a) the annual rates of duty for licences (other
than trade licences) for vehicles chargeable in accordance
with Schedules 1, 3, 4 and 5 to the Vehicles (Excise) Act
1962 shall be those respectively specified in Parts I to IV
of the following Table;
(b) the annual rates (section 12 of the said Act of 1962) of duty for general trade licences shall be increased from £30 to £45 and from £6 to £9, and for limited trade licences shall be increased from £6 to £9 and from £1 5s. 0d. to £2.
And it is hereby declared that it is expedient in the public interest that this Resolution should have statutory effect under the provisions of the Provisional Collection of Taxes Act 1913.

PART II


VEHICLES CHARGEABLE IN ACCORDANCE WITH SCHEDULE 3




Weight unladen of vehicle
Rate of duty



1.
2.
3.
4.
5.


Description
Exceeding
Not Exceeding
Initial
Additional for each ton or part of a ton in excess of the weight in column 2






£
s.
d.
£
s.
d.


1.
Agricultural machines; digging machines; mobile cranes; mowing machines.
—
—
3
15
0

—



2.
Haulage vehicles, being showmen's vehicles
—
7¼tons
45
0
0

—





7¼tons
8 tons
54
0
0

—





8 tons
10 tons
63
0
0

—





10 tons
—
63
0
0
9
0
0


3.
Haulage vehicles, not being showmen's vehicles.
—
2 tons
45
0
0

—





2 tons
4 tons
72
0
0

—





4 tons
6 tons
99
0
0

—





6 tons
7¼tons
126
0
0

—





7¼tons
8 tons
153
0
0

—





8 tons
—
153
0
0
27
0
0

PART III


VEHICLES CHARGEABLE IN ACCORDANCE WITH SCHEDULE 4


Tables showing annual rates of duty on goods vehicles


TABLE A


General Rates of Duty




Weight unladen of vehicle
Rate of duty


1.
2.
3.
4.
5.


Description of vehicle
Exceeding
Not Edceeding
Initial
Additional for each ¼ ton or part of a ¼ ton in excess of the weight in column 2






£
s.
d.
£
s.
d.


1.
Farmers'goods vehicles
—
12 cwt.
18
0
0

—





12 cwt.
16 cwt.
19
5
0

—





16 cwt.
1ton
20
5
0

—





1ton
l ¼ tons
21
10
0

—





1 ¼ tons
2 tons
21
10
0

15
0




2 tons
3 ½ tons
23
15
0
1
5
0




3½ tons
—
31
5
0

15
0


2.
Showmen's goods vehicles; electrically propelled goods vehicles (other than farmers' goods vehicles); tower wagons.
—
12 cwt.
18
0
0

—





12 cwt.
16 cwt.
19
15
0

—





16 cwt.
1ton
21
10
0

—





1ton
2 tons
21
10
0
1
15
0




2 tons
3 tons
28
10
0
2
0
0




3 tons
4 tons
36
10
0
1
15
0




4 tons
6 tons
43
10
0
2
0
0




6 tons
8 tons
59
10
0
1
15
0




8 tons
—
73
10
0
2
0
0


3.
Goods vehicles not included in any of the foregoing provisions of this Part of this Schedule.
—
12 cwt.
18
0
0

—





12 cwt.
16 cwt.
22
10
0

—





16 cwt.
1ton
27
0
0

—





1ton
3 tons
27
0
0
4
10
0




3 tons
4 tons
63
0
0
6
15
0




4 tons
—
90
0
0
9
0
0

TABLE B


RATES OF DUTY ON GOODS VEHICLES USED FOR DRAWING TRAILERS




Weight unladen of vehicle





1.
2.
3.
4.


Description of vehicle
Exceeding
Not Exceeding
Rate of Duty






£
s.
d.


1.
Showmen's goods vehicles; electrically propelled goods vehicles (other than farmers' goods vehicles); tower wagons.
—
—
18
0
0


2.
Other goods vehicles
—
2 ½ tons
18
0
0




2 ½ tons
4 tons
27
0
0




4 tons
—
36
0
0

PART IV


VEHICLES CHARGEABLE IN ACCORDANCE WITH SCHEDULE 5


Description of vehicle
Rate of duty




£
s.
d.


1.
Electrically propelled vehicles; vehicles not exceeding seven horse-power, if registered under the Roads Act 1920 for the first time before 1st January 1947
12
10
0


2.
Vehicles not included above
17
10
0

For the purposes of this Resolution, weight, cylinder capacity and horse-power are to be determined, and other expressions interpreted in accordance with, the said Act of 1962.—[Mr. Callaghan.]

put and agreed to.

VEHICLES EXCISE DUTY (EXEMPTIONS)

Motion made, and Question,
9. That as from 7th April 1965—

(a) no duty shall be chargeable under the
Vehicles (Excise) Act 1962 in respect of local authority's watering vehicles (as defined in Schedule 4 to that Act) or tower wagons (as so defined) used solely by a street lighting authority, or a person acting in pursuance of a contract with such an authority, for the purpose of installing or maintaining any materials or apparatus for lighting roads, streets or public places;
(b) a goods vehicle shall not be charged with any increased duty under paragraph 1(2) of the said Schedule 4 by reason of being used for drawing any vehicle which, if mechanically propelled, would be exempt from duty by virtue of paragraph (a) above.
For the purposes of this Resolution "street lighting authority" means any local authority or Minister having power under any enactment to provide materials or apparatus for lighting roads, streets or public places.
And it is hereby declared that it is expedient in the public interest that this Resolution should have statutory effect under the provisions of the Provisional Collection of Taxes Act 1913.—[Mr. Callaghan.]

put and agreed to.

INCOME TAX (SURTAX RATES FOR 1964–65)

Motion made, and Question,
10. That income tax for the year 1964–65 shall be charged, in the case of an individual whose total income exceeded £2,000, at the same higher rates in respect of the excess as were charged for the year 1963–64;
And it is hereby declared that it is expedient in the public interest that this Resolution should have statutory effect under the provisions of the Provisional Collection of Taxes Act 1913.—[Mr. Callaghan.]

put and agreed to.

INCOME TAX (ALTERATION OF PERSONAL RELIEFS)

Motion made, and Question,
11. That—

(a) the personal reliefs under section 210 of the Income Tax Act 1952 shall be increased by substituting £340 for £320 in subsection (1)(a) (married) and £220 for £200 in subsection (1)(b) (single) and in subsection (2) (wife's earned income relief) for £200 there shall be substituted £220;
(b) the amounts of £255 and £180 (total income of the dependent relative) specified for the purposes of section 216 of the said Act of 1952 shall each be increased by £30;
(c) section 377(2) of the said Act of 1952, section 19 of the Finance Act 1960 and so much of section 14 of the Finance Act 1957 as relates to the said section 19 (income tax and surtax relief for National Insurance contributions) shall cease to have effect, but not so as to revive any relief or deduction under any other provision of the said Act of 1952 for which relief under the said section 377(2) was substituted;
(d) in section 15 of the Finance Act 1952 (relief for small incomes), subsection (2) shall be amended by substituting £705 for £680 (income limit for marginal relief);
(e) in section 13 of the Finance Act 1957
(relief for persons over 65 with small incomes)—

(i)for the references to £360 and £575
(the income limits for exemption) there shall be
substituted references to £390 and £625;
and
(ii)for the reference to £130 (the excess over
those limits by reference to which relief by reduction of
tax is limited) there shall be substituted a reference to
£160;
but the amounts of tax deductible or repayable under section 157 (pay as you earn) of the Income Tax Act 1952 shall until 8th June 1965 be the same as if no such changes had been made as are provided by paragraphs (a), (c), (d) and (e) above (any necessary correction being made on or after that day by adjusting subsequent deductions or repayments under that section or, if need be, by an assessment):
And it is hereby declared that it is expedient in the public interest that this Resolution should have statutory effect under the provisions of the Provisional Collection of Taxes Act 1913.—[Mr. Callaghan.]

put and agreed to.

INCOME TAX (SURTAX ON CERTAIN SETTLEMENTS)

Motion made, and Question,
12. That provision shall be made, as respects any
settlement on or after 7th April 1965—

(a) for treating as the income of the settlor for
the purposes of surtax any income arising under the
settlement which is payable to or applicable for the
benefit of an individual or individuals and is not income
from property of which the settlor has divested himself
absolutely by the settlement or income which is otherwise
to be treated as the income of the settlor;
(b) for including among the cases in which, for the purposes of surtax on income arising under any settlement, a settlor is treated as not having divested himself absolutely of any property cases where that property, or any property or income directly or indirectly derived from it, is, or will or may become, payable to or applicable for the benefit of the wife or husband of the settlor.—[Mr. Callaghan.]

put and agreed to.

INCOME TAX (BUSINESS ENTERTAINING)

Motion made, and Question,
13.That, subject to an exception in the interests of
the export trade, expenses incurred on or after 7th April
1965 in respect of business entertaining (including
hospitality of any kind and gifts) shall not be deducted in
computing an), profits or gains or any emoluments
chargeable to income tax and shall not be included in
computing any expenses of management in respect of
which relief may be claimed under the Income Tax Acts
and that provision be made for restricting capital
allowances under those Acts in respect of assets used for
such entertaining.—[Mr.
Callaghan.]

put and agreed to.

INCOME TAX (WITHDRAWAL OF INITIAL ALLOWANCES FOR MOTOR CARS)

Motion made, and Question,
14. That provision be made for withdrawing initial allowances in respect of expenditure incurred on or after 7th April 1965 on the provision of vehicles of a type commonly used as private cars other than such vehicles provided wholly or mainly for hire to or for the carriage of members of the public in the ordinary course of a trade.—[Mr. Callaghan.]

put and agreed to.

INCOME TAX (CASE VII OF SCHEDULE D)

Motion made, and Question,
15. That amendments shall be made in Chapter II
of Part II of the Finance Act 1962 (Case VII of Schedule
D) and in particular—

(a) amendments enlarging the classes of assets
which are chargeable assets for the purposes of Case VII,
and

(b) amendments bringing within Case VII the acquisition and disposal of an asset where the disposal occurs up to twelve months after the acquisition (instead, in the case of all assets other than land, of up to six months).—[Mr. Callaghan.]

put and agreed to.

INCOME TAX (COST OF MAINTENANCE, ETC., OF AGRICULTURAL LAND)

Motion made, and Question,
16. That relief in respect of the cost of
maintenance, repairs, insurance and management under
section 29(4) of the Finance Act 1963 and under
paragraph 11 of Schedule 4 to that Act for the year
1963–64 and later years of assessment shall be
restricted by reference to allowances under section 313 of
the Income Tax Act 1952 (maintenance, etc., of
agricultural land) as well as by reference to relief under
sections 99 to 101 or 176(1)(g) of the Income Tax Act
1952 (general maintenance relief)—[Mr.
Callaghan.]

put and agreed to.

PROFITS TAX (MISCELLANEOUS CHARGES)

Motion made, and Question,
17. That it is expedient to authorise charges to the
profits tax which arise from provisions for that tax
corresponding with amendments of the law relating to
income tax or are incidental to or consequential on such
amendments.—[Mr. Callaghan.]

put and agreed to.

CAPITAL GAINS

Motion made, and Question,
18. That chargeable gains, defined and computed
in such manner as may be prescribed, from any description
of property in the United Kingdom or elsewhere,
including options, debts and incorporeal property
generally, shall be charged to tax and—

(a) the chargeable gains as so defined shall
include gains accruing, or treated as accruing. at any time
after 6th April 1965, and gains from property already held
on or before that date, but subject to provisions designed
in general to exclude from charge to tax gains or parts of
gains attributable to periods before that date,
(b) the provisions prescribing the manner in
which chargeable gains are to be defined and computed
may take account of dispositions, events, facts and
circumstances before the said date, as well as
later,
(c) the provisions relating to tax on the
chargeable gains—

(i) may impose incidental or consequential charges to
estate duty, and
(ii) so far as designed in general to afford relief from
the tax by reference to taxes or duties charged under the
law of any country outside the United Kingdom, may
impose any incidental charges to income tax or the profits
tax.—[Mr.
Callaghan.]

put and agreed to.

TAXATION OF COMPANIES AND COMPANY DISTRIBUTIONS

Motion made, and Question,
19. That new provisions should be enacted for
these purposes:—

(a) for the introduction, at such rate as may be imposed by any later Act, of a new tax on the income and other profits or gains of companies, together with such other bodies and trusts as may be brought within the scope of the tax; and
(b) for making any income tax which may be charged by a later Act for years after 1965–66 chargeable on all dividends and distributions of companies and of such other bodies and trusts as aforesaid, and on such other amounts as may be brought into the charge with dividends and distributions;
and, notwithstanding any charge to taxation thereby imposed for any period before or after the passing of this Resolution, there may be made any such adaptations or amendments (whether immediate or postponed) of income tax or any existing tax or duty as deal with matters falling within the new provisions above authorised or with matters related to or affected by the new provisions or their introduction.—[Mr. Callaghan.]

put and agreed to.

STAMP DUTIES (CONVEYANCES AND TRANSFERS)

Motion made, and Question,
20. That provision be made for treating certain instruments as conveyances or transfers on sale or as conveyances or transfers operating as voluntary dispositions inter vivos, and with respect to the determination of the value of property for the purposes of stamp duty chargeable on conveyances and transfers operating as such dispositions.—[Mr. Callaghan.]

put and agreed to.

INCIDENTAL AND CONSEQUENTIAL CHARGES

Motion made, and Question,
21. That it is expedient to authorise any incidental or consequential charges to any duty or tax (including charges having retrospective effect) which may arise from provisions designed in general to afford relief from taxation.—[Mr. Callaghan.]

put and agreed to.

AMENDMENT OF THE LAW

Motion made, and Question proposed,
22. That it is expedient to amend the law with respect to the National Debt and the public revenue and to make further provision in connection with finance, so, however, that this Resolution shall not extend to making—

(a) amendments of the enactments relating to purchase tax so as to give relief from

tax, other than amendments making the same provision for chargeable goods of whatever description, or for all goods to which any of the several rates of tax at present applies;
(b) amendments of the provisions of the
Finance (No. 2) Act 1964 relating to temporary charges
on imports so as to give relief from the duty imposed by
those provisions, other than amendments making the same
provision for all goods chargeable with that
duty.—[Mr.
Callaghan.]

6.0 p.m.

Sir Alec Douglas-Home: The Chancellor of the Exchequer has once again passed through the ordeal of presenting a Budget to Parliament and it is one of our more agreeable and civilised customs that the Leader of the Opposition, who is, naturally, one of his severest critics, should give to the Chancellor the congratulations of all hon. Members on his personal achievement.
I do so with considerable pleasure this afternoon. The right hon. Gentleman has made a long and difficult speech and has been under considerable physical strain. He has delivered it with skill, lucidity and courtesy, and even if all his arts of persuasion could not sugar the pill, that is no criticism of his advocacy. I hope that he is content in the knowledge that he in no way fell short of the standard set by his predecessors on this historic Parliamentary day.
The Committee will have noticed that we did not vote on the Budget Resolutions. I myself have thought that it was not a sensible procedure that one should hear from the Chancellor a long and complicated Budget speech, that the Resolutions should be read from the Chair and that immediately those in opposition in Parliament should be expected to vote on very complicated issues. So we have reverted to the old procedure of Parliament, a procedure which we used to adopt I think before 1954. I consider that this is best. However, we of course reserve the right to vote on the Resolutions on Report, after we have had a chance to give the right hon. Gentleman's proposals the really detailed consideration which they deserve. I hope that perhaps the Committee may feel that we should, from now on, go back to the old procedure, a procedure which is perhaps best in the public interest.
During his Budget speech the right hon. Gentleman
pronounced general principles


which I myself found unexceptionable in many cases; his intention to redress the adverse situation in the balance of payments and his intention to strengthen the £ sterling. Some of the things he announced will turn out to be better ways of doing old things. Nevertheless, the plain fact is, to strip the Budget speech of all the official jargon and all the surrounding persuasive words which the right hon. Gentleman used, that this Budget bears out the traditional pattern of Socialist Budgets, which is that they raise taxes. Whenever there has been a Socialist Government in the past taxes have gone up and the people have paid.
We have now had two Budgets from the right hon. Gentleman. The autumn Budget began by putting taxes up. The right hon. Gentleman has done so again this afternoon. He has, it is true, as he said, avoided the necessities—that is, if he does not think that beer and Scotch whisky a re necessities, which I do. As I say, he said that he has avoided the necessities, but he is taking £250 million—I think that was the figure he used—out of consumption.
I must remind him that the taxes which he has put on the community today are put on people who are already bearing a standard rate of Income Tax of 8s. 3d., and the highest rate is 18s. 3d. For an individual who is today earning £18 a week, who has three children and who is buying a house—and this is by no means an extreme case—the cost of living has risen 14s. a week since October last. These figures come from the B.B.C. and I suggest that the B.B.C. is not likely to want to embarrass the Government. In two Budgets the right hon. Gentleman has the distinction of having put up taxes, in sharp contrast to the Conservative Budgets of the last so-called wasted years in which, in nine out of 14, taxes were brought down.
I say at once—and we have had a long Budget speech from the right hon. Gentleman; I am not complaining about that but I do not wish to take up too much time, but merely stick to the broadest issues—that the attitude of the Opposition to this Budget is that one of our main concerns must be to support the right hon. Gentleman and the Government in sustaining the value of the £ sterling. This must be, as a responsible Opposition, our main attitude to the Government today.
I must say that when I heard about the Prime Minister—who I am sorry is unable to be here; there is a reason for that—the other day spending hours persuading General de Gaulle that the British economy was fundamentally sound and when I heard the Chancellor of the Exchequer this afternoon saying that investment was up, exports in the last three months were up by 6 per cent., production up, stock-building down and the terms of trade turning in our favour, I wondered if the Prime Minister and hon. and right hon. Gentlemen opposite are now reflecting that they might have saved themselves considerable anxiety and the country a Budget like this—and an autumn crisis involving the value of the £ —had they not held up to ridicule similar statements made by my right hon. Friend the Member for Barnet (Mr. Maudling). [Interruption.]
Everything that the Chancellor said under these headings today only reinforces—[Interruption.]—I prefer my matches to the Prime Minister's economics, and I think that "after this Budget most people in the country will, too; we will listen to the speech of the First Secretary with great pleasure, no doubt tomorrow—the policies which we were following over the last—[Interruption.]—in regard to strengthening the economy and the export capacity of the country and underlined every word my right hon. Friend the Member for Barnet said last year.
The main features of this Budget, I think I am fair in saying, are the two new taxes which the Chancellor has introduced; one the Corporation Tax and the other the Capital Gains Tax. We will consider these two taxes in detail when we come to the proper stage. I must say now, looking at the Corporation Tax as it was expounded to us by the right hon. Gentleman, that although he said that his intention was not to take more in the combined taxes than the profits extracted from industry by the two separate taxes now, I consider that the rate of 40 per cent. is very high.
We are greatly concerned, too, about the treatment of profits of companies trading overseas. I understood the right hon. Gentleman to say that he was going to make only transitional arrangements about these. I do not think that this is satisfactory and I shall be surprised, when


we come to the time, if we do not vote against the Corporation Tax—that is, unless the right hon. Gentleman is willing to amend it.
The right hon. Gentleman then turned to the heading of the external impact on this country of investment overseas, and noted with pride that assets overseas had risen from what must have been an absolutely minimal figure after the war to something like £11,000 million now. He said that that would be good hearing for the bankers overseas. I agree. He then made a comparison between investment at home and investment overseas and the respective value to our country.
With some of the things the right hon. Gentleman said I agree, but I must say that I find it very difficult to reconcile what he has been saying today with the views of his hon. and right hon. Friends who on every possible occasion from this side of the House were urging us to assist Commonwealth countries and to assist developing countries in Asia and Africa by investing more and more overseas. The right hon. Lady the Minister for Overseas Development has left us, but she will be out of a job on what the Chancellor has been saying. I am not sure that I complain of his analysis, but certainly suggest that his right hon. and hon. Friends must have done a lot of new thinking if he can now say what he has said to us today.
As I understood the right hon. Gentleman, there will be a flat rate of Capital Gains Tax of 30 per cent. for the individual and 35 per cent. for companies——

Mr. Callaghan: The Capital Gains Tax will be 35 per cent. for a small number of companies which commenced or ceased in 1965–66, but the remainder of the companies will pay Capital Gains Tax at the Corporation Tax rate.

Sir A. Douglas-Home: We shall later have to examine this proposal, and get it entirely clear. I and my right hon. and hon. Friends take no doctrinaire position on this, but I do say that if a Capital Gains Tax is to be part of our financial structure it should not only be at a low level but should not stand alone. It should be only one element in a reform of Income Tax, Surtax and Death Duty, as a whole, and should

be in a framework of reduced taxation. My main complaint about the Chancellor's proposal is that it is put forward in the context of rise in taxation, and is not part of what I might call a package deal of Income Tax, Surtax and Death Duty together. However, as I have said, we will examine this proposal later.
I have already referred to taxes on consumption. The Chancellor has argued that they are necessary. That may be so but coming, as they do, from the right hon. Gentleman, I think that I am entitled to ask "Since when?" and "Why?" I recall that in the autumn right hon. Gentlemen opposite—and I can give them a number of quotations it they want them—said that no disinflation was necessary. That was after the General Election. Apparently they had no misgivings in the autumn Budget. The right hon. Gentleman may remember that I then followed him and said that his Budget was inflationary. That brought jeers, and cries of derision from the benches opposite. Well, here is the result today.
Any action that the Chancellor has taken today is in respect of the mismanagement of the economy since November—[Interruption.] Hon. Members opposite again jeer and laugh, but they did not think that any disinflation was necessary after the General Election, they did not think it necessary in November, and they have done nothing between then and today in any way to curtail Government expenditure. Now the right hon. Gentleman has concluded that he must take this large amount out of consumption in this country. [Interruption.] I am entitled to my opinion. The right hon. Gentleman may not like what I have said, but I think that it is true.
The truth is that many of the taxes have to be imposed in order to restore the confidence of the foreigner which the Government lost. If ever there has been a party in thrall to the bankers it is the Socialist Party, and the Government's effort to correct an inflation of their own making is in sharp distinction to the behaviour of hon. and right hon. Gentlemen opposite last year, when they did not help us very much. When we said that the economy was fundamentally strong, they


jeered. In contrast with that behaviour, we support the right hon. Gentleman when he says that the economy is fundamentally strong—and he can do so now with more effect when production is rising, exports are rising and the balance of trade is improving, as we said they would.
I turn to the right hon. Gentleman's conclusion about the cancellation of the TSR2. I rose as he was speaking in order to complain that while he told us of the savings that he expected to be made from the cancellation of this aircraft, he did not tell us whether it was intended to buy the TFX from America, or what would take its place—[Interruption.]—I will come to the Secretary of State for Defence in a moment. I have never seen a more scurvy trick played on Parliament than the one that has been played today.
The Chancellor has taken credit for the savings on the TSR2, but he has not told us whether we are to buy an American aircraft, or have no substitute at all. His figures are worthless until we have those facts. What I complain of in the right hon. Gentleman and his colleagues is that they have included in the statement of the national accounts that the Chancellor makes annually in the Budget a decision which alters all the strategic concept of our defence planning and the industrial organisation which services our Armed Forces.
What use is it for the Prime Minister to say to General de Gaulle that we shall go into partnership in aircraft production—because the right hon. Gentleman knows that very marginal minimal things are being considered at the present time—when, in advance of a really worthwhile project being worked out with French or European allies, he has taken a decision that is bound to send all design teams scurrying to seek employment and security elsewhere, and when he gets rid of our greatest asset of this kind—this great aeroplane, probably the best of its kind in the world. I do not think that this is the best way to enter into partnership with Europeans for future projects of this kind.
There is only one explanation for the procedure that the right hon. Gentleman has adopted, and it is funk. [Interruption.] The Government are ashamed of what they are doing, and they want to cover it up by hiding it amongst the rest

of the things which a Chancellor of the Exchequer normally says on Budget Day—[Interruption.] The Leader of the House is not present now, but I shall ask for a day to debate this subject, so that we may know the full intentions of the Government. As far as I can see now, we are bound to censure them, and I believe that our censure will be taken up by a great many people who wish to see the country's aircraft industry preserved.
That is all I have to say about the Budget now. My right hon. Friends will give their reviews in more detail, having, studied all the Chancellor has said with the closest attention—and it deserves it —but I must repeat that this is the pattern of Socialist Budgets. We have had two of them. We had the first dose in the autumn, and we have had the second dose now. They have both included rising taxation, and I think that tonight more and more people will join us in feeling that we dare not have from the party opposite a third and a fatal dose.

6.20 p.m.

The Secretary of State for Defence (Mr. Denis Healey): I hope the Committee will forgive me if I take this opportunity of giving it more details of Her Majesty's Government's decision to cancel the TSR2 programme and of how we propose to deal with the military and industrial consequences of this decision. I hope, in the course of my remarks, to deal with the point which was raised by the Leader of the Opposition.
The Government have been wrestling continuously with this problem ever since they took office some six months ago. It has always been obvious that the cost of continuing the TSR2 programme was likely to impose an intolerable burden on the national economy, in general, and the defence budget, in particular. But we have had to consider also the operational needs of our defence forces and the needs of the sort of aircraft industry which Britain is likely to require in the 1970s for both military, technological and commercial reasons.

Sir Cyril Osborne: On a point of order. I seek your guidance, Sir Herbert. Is it quite in order for the Secretary of State to make this statement


now, since the Chancellor of the Exchequer said it would be made at 7 o'clock and many hon. Members are returning at 7 o'clock expecting the statement to be made then? [Interruption.]

The Temporary Chairman (Sir Herbert Butcher): Order. I am listening to a point of order from the hon. Member for Louth (Sir C. Osborne).

Sir C. Osborne: I hope that this is a proper and serious point of order, Sir Herbert. Would it not be better and in accordance with the true traditions of the House of Commons if the promise made by the Chancellor of the Exchequer were fulfilled and this statement were made at 7 o'clock? I suggest that the Secretary of State should cease speaking now.

The Temporary Chairman: The order in which speakers are called is the prerogative of the Chair.

Mr. Healey: As I was saying, Sir Herbert, we discovered when we came into office that the programme for the TSR2 planned by the previous Government would have cost about £750 million for research, development and production. An order for 150 aircraft would have meant that each one would have cost £5 million. The smaller the order the higher the cost per aircraft. For example, an order for 100 aircraft would have meant that each aircraft would have cost over £6 million, of which nearly £5 million would still remain to be spent. These were the figures which the previous Government accepted as the basis of their policy. I submit that a programme of this order was not one which, in any circumstances, could be held to represent value for money. It was not only too costly in terms of defence expenditure. It was also making far too great a demand on our country's scarce resources of highly skilled manpower.
Nevertheless, I do not believe the Government would have been justified in taking a decision to cancel the TSR2 at the time when they decided on the other changes in our military aircraft programme two months ago. We needed better information than we then possessed on the probable cost of the TSR2 and on the cost and performance of possible alternative aircraft. As the Prime Minister explained on 2nd February, it

was the mounting cost of the TSR2 programme on which the previous Administration had embarked which was the essential reason for the review which has been undertaken.
We now have enough further information to take a decision, and it is clear that no more significant information is likely to be obtained for some months. The House was informed earlier——

Mr. Anthony Kershaw: On a point of order. The Secretary of State is about to embark on a series of statements, as I understand from what he has just said. There will doubtless be a great number of questions which hon. Members, perhaps on both sides, will wish to ask him. Will it be in order, Sir Herbert, to ask him those questions as one usually does after a Statement; or, if one rises to one's feet and is called to ask a question, will one be taken to have spoken in the debate and therefore be precluded from speaking in the rest of the Budget debate?

The Temporary Chairman: It would be better to deal with those difficulties when we reach them.

Mr. Healey: The House was informed earlier that we should seek—

Sir Alec Douglas-Home: Sir Herbert, I think that this puts the Committee in a great difficulty. This is a subject in which, as is well known, hon. Members on both sides have a great interest. It vitally affects the future of the country. As my hon. Friend the Member for Stroud (Mr. Kershaw) pointed out, no doubt hon. Members will wish to ask many questions. Will such questions be counted as speeches, or is this matter to be regarded as a statement after Questions so that we shall have questions running for perhaps an hour or more in the middle of a debate? I do not think that this practice ought to be allowed to go without you ruling, Sir Herbert.

The Temporary Chairman: I am most grateful to the Leader of the Opposition for his representation. As I see it, however, the Secretary of State for Defence is participating in the debate on the last of the Budget Resolutions, and all speeches that follow his should be directed to that, the scope for which is quite wide. Mr. Healey.

Sir Robert Cary: Further to that point of order. The Secretary of State is making a considered statement. He is not intervening in the Budget debate.

The Temporary Chairman: It is not for me to decide how the Secretary of Sate for Defence speaks. He has risen to participate in this debate on the Budget Resolution. I have called him. He is making his speech as he thinks fit.

Sir Alec Douglas-Home: Would it not be much tidier and better if we were to move to adjourn the debate so that a statement may be made which may be followed by questions, and then we can resume the Budget debate when we finish with that?

Mr. Michael Foot: Further to that point of order, Sir Herbert.

Hon. Members: Order.

The Temporary Chairman: I would not be prepared to accept a Motion to adjourn at the present time.

Mr. Foot: On a point of order. Is it not a fact that a few minutes ago the Leader of the Opposition was complaining because he was not given further information about the TSR2 and that he now appears to be complaining because he is getting the information? Does not that lead to the fact that—

The Temporary Chairman: The hon. Gentleman rose to a point of order. That is not a point of order.

Mr. Foot: Sir Herbert, I did indeed rise to a point of order.

The Temporary Chairman: The hon. Gentleman knows perfectly well that he has not yet reached a point of order. If he has one, will he please come to it?

Mr. Foot: Indeed, Sir Herbert. My point of order was directly in relation to what has been said by the Leader of the Opposition. He suggested to you, Sir Herbert, that it would be helpful if the debate were to be adjourned and the statement of my right hon. Friend were made as a statement of the same nature as those made after questions. If that were the course to be taken, would it not have the disadvantage that hon. Members opposite and other hon. Members would only be able to put questions and would not be

able to continue the debate? Is it not, therefore, the fact that the procedure which has been adopted by my right hon. Friend the Secretary of State for Defence gives the maximum opportunity to hon. Members opposite?

The Temporary Chairman: That is not a point of order.

Mr. Hugh Fraser: On a point of order. I find myself in the seat of the Liberal Leader who expected the statement to be made at 7 o'clock. This shows the general confusion caused by the tactics adopted by the Government in this matter. The difficulty that we face can be resolyed only by the Secretary of State for Defence making a statement tomorrow after Questions in the normal way so that there will be no confusion between military, political and economic matters.

The Temporary Chairman: That is not a point of order.

Mr. W. R. Rees-Davies: On a point of Order. Might I invite you, on a real point of order, Sir Herbert, to look at Resolution 22? It will be seen that this Resolution does not and cannot entitle the Minister of Defence to speak to the Resolution. If that be so, he must be speaking out of order, because he was not called to make a speech in the debate. He was called, or should have been called pursuant—

The Temporary Chairman: Perhaps I can help the hon. Member, and indeed other hon. Members, by reading a quotation from Erskine May which happens to have come to my hand just at this moment. It says that the scope of debate on Budget Resolutions enables speakers to be
at liberty to consider expenditure in its relation to the burden of providing the necessary revenue.

Mr. Christopher Soames: On a point of order. Has it ever happened in your memory of the House or the Committee, Sir Herbert, that a leading Government spokesman should make a statement in a Budget speech on a detailed military matter—something which should have been made as a statement after Questions in order that the Opposition might he able to question him in a normal manner?

The Temporary Chairman: It is not my memory that is before the Committee at the moment. It is the Budget Resolution.

Mr. Healey: On a point of order. Is it not the case that the previous Government announced the buying of the American Phantom during a speech in the defence debate? Is it not the case that the then Prime Minister announced details of previous aircraft programmes in a speech in a debate, and is there any reason under the rules of order why I should not do the same?

The Temporary Chairman: That is not a point of order.

Mr. Neil Marten: On a point of order. Last Thursday, on business, I and others raised this very matter which we feared would happen. The Leader of the House gave me an assurance that this statement would be made in the House. We are now in Committee.

The Temporary Chairman: That is not a point of order. The position is this—

Sir Arthur Vere Harvey: On a point of order. You will have heard this afternoon, Sir Herbert, during the Chancellor's statement that the Secretary of State for Defence would make a statement at 7 o'clock. A number of hon. Members who have constituency problems are dealing with other matters in this Palace. Is it not absolutely wrong to mislead hon. Members by 40 minutes in the timing? What does it mean?

The Temporary Chairman: We are now engaged in debating this Budget Resolution which I have already referred to the Committee. The right hon. Gentleman the Secretary of State for Defence rose to participate in the debate. I called him when he rose, which is the customary thing to do when a Privy Councillor rises. I hope that the right hon. Gentleman will be allowed to continue his speech in silence. Mr. Healey.

Sir Alec Douglas-Home: Sir Alec Douglas-Home rose—

Hon. Members: Sit down.

The Temporary Chairman: Order. We will get on a lot better if hon. Gentlemen will allow the conduct of proceedings to rest with me.

Sir Alec Douglas-Home: On a point of order. This is a perfectly genuine point on the protection of the rights of hon. Members on both sides of the Committee. If you will not accept a Motion from me for the adjournment of the House and that we should take this matter on the Adjournment and then resume the debate in Committee, which I think would be much the best way, I shall have to ask you, Sir Herbert, whether, when the right hon. Gentleman has finished making his statement, you will allow questions in the same way as after Questions. [HON.MEMBERS: "No."] I am asking the Chair, not hon. Gentlemen. Will you allow questions, as you would have done if this had been a statement after Questions?

The Temporary Chairman: I take note of what the right hon. Gentleman says, but the fact remains that we are in a continued and consecutive debate and the speech made by the right hon. Gentleman the Secretary of State for Defence, when it is made, will be followed by a speech made by another hon. or right hon. Gentleman. The same position applies, in terms of asking questions, as would apply if I were to agree to accept the Motion for the Adjournment of the House. Questions would not then be in order. I trust now that the Secretary of State will be allowed to make his statement.

Mr. Quintin Hogg: Mr. Quintin Hogg (St. Marylebone)rose—

Hon. Members: Sit down.

Mr. Hogg: Would not the whole difficulty be avoided if the Leader of the House were to move to report Progress and ask leave to sit again so as to enable the Secretary of State to speak on that Motion?

The Temporary Chairman: The right hon. and learned Gentleman knows that that is not a point or order. Mr. Healey.

Mr. Anthony Barber: Last Friday, the fate of the TSR2 was in all the national newspapers—

Hon. Members: Sit down.

The Temporary Chairman: Order. The Committee is getting much too excited. I think we have now probably exhausted all the possible points of order.

Several Hon. Members: Several Hon. Members
rose—

Mr. Peter Emery: On a point of order.The Committee is obviously in a very real difficulty. The Committee has been led to believe that a statement would be made at seven o'clock. It is within the power of the Chair to suspend the Sitting for a number of minutes. I would ask you, Sir Herbert, whether you would suspend the Sitting until seven o'clock when the statement could be made, as was promised by the Government?

The Temporary Chairman: The duty of the occupant of the Chair is to assist the Committee in making progress with the business in front of the Committee. Mr. Healey.

Mr. Healey: The House was
informed earlier—

Mr. John Farr: On a point of order.

The Temporary Chairman: Has the hon. Gentleman a real point of order?

Mr. Farr: Yes, Sir Herbert. Is it in order and proper for this statement to be made when the right hon. Gentleman the Prime Minister happens to be ill and unable to be present, in view of—

Hon. Members: Sit
down.

The Temporary Chairman: That is not
a point of order. Mr. Healey.

Mr. Healey: rose—

Mr. Robert Maxwell: On a point of order.

Hon. Members: Sit down.

Mr. Healey: The House of Commons was informed earlier that we should seek a fixed price for the TSR2. In view of all the complexities of the programme, the manufacturers have not been able to offer such a price. The best arrangements that they have felt able to offer would have given no assurance that Her Majesty's Government's ultimate financial liability would have been limited. The likely course of completing the development of the TSR2 would have been as high as, or even higher than, previous estimates. Meanwhile, every week that the programme continues it is costing the taxpayer something of the order of £1 million.
In the circumstances, we do not feel that we can justify any further delay. With deep reluctance, Her Majesty's Government have decided that they must now cancel the TSR2 programme. I hope that no one believes that this has been an easy or welcome decision, particularly at a moment when the aircraft was making good progress in its development programme. We are fully conscious of the disappointment our decision must cause to those thousands of people who have worked so long and so hard on a project which has been cancelled through no fault of theirs. The fundamental reason for the cancellation—I ask the Committee to accept this—is the stark fact that the economic implications of modern military technology rule out British development and production of this type of aircraft for a purely national market.
I should like to say a word or two about the military and industrial implications of this decision, and, in the course of so doing, answer the question raised by the right hon. Gentleman the Leader of the Opposition. Her Majesty's Government have no intention of requiring our forces to forgo the aircraft at present planned to replace the Canberra towards the end of this decade without making certain that they can carry out their operational tasks by other means. It will not be possible to define these tasks precisely until the defence review is completed later this year. The review may show that the number of aircraft required with TSR2 performance characteristics—

The Temporary Chairman: Now the right hon. Gentleman is getting himself in difficulties. He is perfectly entitled, as I showed by a reading from a passage in Erskine May happily convenient to hand, to consider expenditure in its relation to the burden of providing the necessary revenue. He is not entitled to deal with other questions of defence.

Mr. Healey: With respect, Sir Herbert, I have no intention of doing so, except in so far as it is necessary to explain the financial implications of the Government's decision.

The Temporary Chairman: I appreciate that the right hon. Gentleman may


be in difficulty, but I am governed by the rule, as I was a few minutes earlier.

Mr. Geoffrey Lloyd: On a point of order, Sir Herbert. Since it is quite clear that the Minister intended to give highly relevant information to the Committee, which you have prevented him from giving, is it not important that he should have a proper opportunity to do so, and ought he not, therefore, to make a statement tomorrow afternoon?

Mr. Healey: With respect, Sir Herbert, I have been pressed to make this statement by the Leader of the Opposition.

Mr. Soames: On a point of order, Sir Herbert. It has now become abundantly clear that the Secretary of State for Defence is anxious to give the House of Commons certain information which you have said it is not in order for him to give at this moment. Is not the right course for him to do so tomorrow, making a statement after Questions, when he can be questioned in the usual way?

The Temporary Chairman: The only duty resting upon me is to ensure that the debate on Budget Resolution No. 22 is carried on in accordance with the rules of the House.

Mr. Healey: I shall seek to show that the economic and financial implications of this decision, which are all-important to the nature of the Budget which we are now considering, can be explained only in relation to the likely requirement for possible aircraft to replace the aircraft which is now being cancelled, and I can undertake, Sir Herbert, not to raise any issue which is not directly relevant to the debate.

Commander Sir Peter Agnew: On a point of order.

Several Hon. Members: Several Hon. Members rose—

The Temporary Chairman: Order. I can deal with only one point of order at a time.

Sir P. Agnew: I understood your Ruling, Sir Herbert, to have precluded the Secretary of State from giving any reasons other than financial for making the statement

which he is now making, and he has now proceeded to justify the information which he was giving to the Committee by referring to needs and requirements in terms of material and military weapons which our defence forces might need. Is not the right hon. Gentleman himself failing to heed the Ruling which you have given, which, apparently, will prevent other hon. Members from questioning the Minister on these matters?

The Temporary Chairman: When the right hon. Gentleman is out of order, I shall call him to order.

Lord Balniel: On another point of order, Sir Herbert. You have the task of assisting back benchers in protecting the interests of constituents who are affected by statements of this nature. This is a detailed statement concerning military matters. Will you give an opportunity to hon. Members whose constituents are affected to ask questions immediately after the right hon. Gentleman has finished?

The Temporary Chairman: Every hon. or right hon. Member who seeks to catch the eye of the Chair does so for the purposes of constituents. I note that the noble Lord has asked to take part in the debate.

Mr. Healey: Mr. Healey rose—

Sir Alec Douglas-Home: If the Chair is unable to help us, I wonder whether the Leader of the House could say something.

The Lord President of the Council (Mr. Herbert Bowden): The assumption here, Sir Herbert, seems to be that the Minister is making a statement. [HON. MEMBERS: "He said so."] If hon. Members will refer to HANSARD tomorrow, they will find that my right hon. Friend the Chancellor of the Exchequer in his statement, dealing with the TSR2 and the saving therefrom, said quite clearly that my right hon. Friend the Secretary of State for Defence, if he caught the eye of the Chair, would make a speech later on. [HON. MEMBERS: "At seven o'clock."] That is the position. I understand further —I was not in the Chamber at the time—that the right hon. Gentleman the Leader of the Opposition—[Interruption.]—had already indicated that a Motion—

The Temporary Chairman: Order. The Leader of the Opposition has invited the Leader of the House to intervene in the debate. Perhaps he may be listened to quietly.

Mr. Bowden: I understand that the right hon. Gentleman the Leader of the Opposition has said that the Opposition are likely to put down a Motion of censure. If the Opposition table a Motion of censure, the Government must, of course, pick it up, and it will have to be debated before Easter. It will give full opportunity for debate. I should have thought that it would be advisable to let my right hon. Friend complete his speech now and let us get on with the general debate, dealing with the points as they arise next week.

Sir Harmar Nicholls: On a point of order, Sir Herbert. This is not the first occasion when the Government of the day have, perhaps, misjudged the procedure. Now that it has been drawn to the attention of the Leader of the House that you, Sir Herbert, cannot, under our rules, permit this sort of statement, is it not clear that the Leader of the House ought to alter the order of his business so that the House may be fully and properly informed?

The Temporary Chairman: That is not a
point of order.

Mr. Healey: Mr. Healeyrose——

Captain John Litchfield: On a point of order, Sir Herbert. There are certain indications that copies of the right hon. Gentleman's statement have already been passed to the Press. [HON. MEMBERS: "0h."] If the right hon. Geltleman's statement or speech is partly out of order, is that in order?

The Temporary Chairman: That raises no point of order for the Chair whatever.

Mr. Healey: And, in fact, the information which the hon. and gallant Gentleman has given is inaccurate.

Mr. R. J. Maxwell-Hyslop: On a point of order, Sir Herbert.

The Temporary Chairman: Before I hear the hon. Gentleman, may I ask him and other hon. Members to make quite sure, that the points which they raise are points of order for the Chair.

Mr. Maxwell- Hyslop: I spy strangers,
Sir Herbert.

Notice taken that Strangers were present.

Whereupon The TEMPORARY CHAIRMAN,
pursuant to Standing Order No. 110 (Withdrawal of Strangers from House), put the Question, That Strangers do withdraw:—

The Committee proceeded to a Division; but no Member being willing to act as Teller for the Ayes, The TEMPORARY CHAIRMAN declared that the Noes had it.

6.52 p.m.

Mr. Healey: It will not be possible to define these tasks precisely until the defence review is completed later this year. The review may show that the number of aircraft required with TSR2 performance characteristics may be substantially below the existing TSR2 programme. On certain hypotheses about long-term commitments it might even be possible to reshape our defences in such a way as to dispense with this type of aircraft altogether. We shall make every effort to see how far existing or planned British aircraft, or possible and economic developments of them, will meet the whole or part of the requirement. In order to be certain that whatever happens our Services—

Mr. Julian Ridsdale: On a a point of order, Sir Samuel. The right hon. Gentleman has said that under certain hypotheses he envisages the R.A.F. without a strike aircraft. Surely the only circumstance in which he can envisage the R.A.F. without a strike aircraft would be the complete withdrawal of our forces from the Far East, the Middle East and Cyprus. Is that the Government's policy?

Mr. Healey: No. I myself think it most unlikely that these hypotheses would be fulfilled. They would, indeed require such a radical change in our commitments as to imply tremendous changes not only in the R.A.F. weapons programme but the weapons programme for the whole of our forces.
In order to make quite certain that, whatever happens, our Services will have appropriate aircraft in sufficient numbers, Her Majesty's Government have secured from the United States Government an option on the F-111A aircraft


at a price per aircraft which, even on a full-scale programme, would represent less than half the estimated total TSR2 research, development and production cost. On a smaller order——

Mr. Hugh Fraser: This is a very important point. In a previous statement we were told that it would be the F-111 Mark II. Would the right hon. Gentleman make it quite clear that this is on option? Will he also make it clear whether the aircraft has actually been built?

Mr. Healey: No, Sir; the F-IIIA Mark II, like the TSR2 Mark II, has not yet been built. But it is likely, certainly if there were no change in our commitments—this is a matter which we shall investigate in the course of the review —that it would be the F-111A Mark II which we would require, and this would be our intention——

Mr. Soames: Will the right hon. Gentleman give way?

Mr. Healey: Perhaps the right hon. Gentleman would allow me to get a little further on, and then I will give way again. I will give way in a moment when I have finished this part of my speech concerned with the option. It it rather complicated, and of immense importance to the Budget, as a matter of fact.
On a smaller order than a full-scale order, the advantage over the TSR2 would be even greater. But even on the full order, on the basis of money yet to be spent the F-111A Mark II is still well over one-third cheaper. After taking full account of all future charges and payments on both aircraft, including cancellation charges on the TSR2, it is now estimated that a full programme based on the F-111A would cost £300 million less than the corresponding TSR2 programme.
The nature of the option on the F-111A is such that Her Majesty's Government have until the end of this year to decide whether to take it up. Any initial order would be a very small number for training purposes. It would not be necessary for Her Majesty's Government to place a follow-up order until as late as April, 1967—that is, two years from now. This arrangement will enable us to complete

our defence review before deciding whether to place any orders at all, and it gives us two years from now before we need take a final decision on the total numbers that we require. [Interruption.] We shall have the firm numbers.
If it emerges that the need for a certain number of F-111A aircraft is required, we shall consider every means of keeping this number to a minimum by making the best use of all available British aircraft. We shall also explore fully the possibility of including some British components in the F-111A in order to reduce dollar costs. The Government have already considered very carefully the effects on the economy——

Mr. A. E. Cooper: On a point of order, Sir Samuel. Are you aware that the information being given to us by the right hon. Gentleman is already on the tape?

Hon. Members: Shame.

The Deputy-Chairman (Sir Samuel Storey): That is not a point of order for the Chair.

Mr. Healey: The Government have already considered very carefully the effect of the cancellation on the economy and the balance of payments—

Sir Alec Douglas-Home: I must interrupt the right hon. Gentleman, Sir Samuel, on the point mentioned by my hon. Friend the Member for Ilford, South (Mr. Cooper). The right hon. Gentleman, in the hearing of the whole Committee just now, said that what he was saying is not available outside. Is that so, or is it not?

Mr. Healey: A Press release was given by the Ministry of Defence as a Ministry of Defence Press release for Press purposes when I stood up to speak. It contains—[Interruption.]—wait a minute. It is not a release in the exact terms in which I am making the speech now. It contains some of the information that I am now giving to the Committee but no information which I am not giving to the Committee. I am, in fact, giving the Committee some information which is not being released to the Press at this moment—[Interruption.]—Nonsense. The Government have considered very carefully——

Mr. Cooper: On a point of
order, Sir Samuel, Are you aware that the tape says, quite
clearly:
A Ministry of Defence statement issued
tonight".

Mr. Healey: Mr. Healey rose——

Sir John Eden: On a point of order, Sir Samuel. Is this not a complete abuse of our proceedings? Is there not some protection for hon. Members in this Committee? Ought not the right hon. Gentleman at least to have the courtesy to make an apology to the Committee for the manner in which he has dealt with this subject?

The Deputy-Chairman: That is not a point of order for the Chair.

The First Secretary of State and Secretary of State for Economic Affairs (Mr. George Brown): For 40 minutes now my right hon. Friend hits been trying to make a speech which your predecessor in the Chair, Sir Samuel, called him to make. The whole of that period has been occupied with alleged points of order.

The Deputy-Chairman: Order. Is the right hon. Gentleman rising to a point of order?

Mr. Brown: Yes, Sir Samuel. The speech my right hon. Friend is trying to make is in answer to a request from the Leader of the Opposition for information. Is it not clear that the new spate of points of order referring to a Press release outside would have no validity if the Opposition would allow my right hon. Friend to make the speech he was going to make?

The Deputy-Chairman: That does not raise a point of order.

Mr. Healey: Mr. Healeyrose——

Mr. Soames: On a point of order. I have in front of me from the tape a statement—

The Deputy-Chairman: Order. What is on the tape does not raise a point of order.

Mr. Healey: They have taken fully into account the dollar expenditure which would be involved in later years if it proved necessary——

Mr. Geoffrey Lloyd: On a point of order, Sir Samuel. Is it in order for the First Secretary of State to suggest that this Committee should time its debates in order to fit in with a release to the Press?

The Deputy-Chairman: Order. That is not a point of order. We would get on better if right hon. and hon. Members stopped raising bogus points of order.

Mr. Healey: Some of the resources which will be released by the cancellation of the TSR 2 will need to be retained in the aircraft industry on new projects—

Mr. Soames: On a point of order. I put this to you, Sir Samuel. Is it not a point of order—[Interruption.]

The Deputy-Chairman: Order. I hope that hon. Members will let me hear what is the point of order being raised by the right hon. Member for Bedford (Mr. Soames).

Mr. Soames: Is not the Defence Secretary in contempt of the House inasmuch as the statement is already on the tape before he has made it to us?

The Deputy- Chairman: That is not a
point of order.

Mr. Healey: Mr. Healeyrose——

Mr. E. L. Mallalieu: On a point of order. Seeing that, during the last half hour, there has been a manifest abuse of the procedure of the House by right hon. and hon. Members opposite rising to bogus points of order, would it be in order for you to send for Mr. Speaker?

Hon. Members: Hear, hear.

The Deputy-Chairman: Order. The hon. and learned Member for Brigg (Mr. E. L. Mallalieu) forgets that we are in Committee.

Mr. Healey: The cancellation of the TSR2 will need—

Lord Balniel: On a point of order. Before you took the Chair, Sir Samuel, your predecessor ruled that this speech by the Defence Secretary was being made under Resolution No. 22. He ruled quite clearly that it was in order to discuss matters affecting the cost of this project


but not to advance the military reasoning which lay behind the arguments. The Committee is in a very real difficulty in discussing this matter without being able to advance military arguments.

The Deputy-Chairman: The Ruling given by my predecessor is quite clear. We can discuss this in its financial aspects but not in its defence aspects. I have listened to what the Defence Secretary has said so far and he has been in order.

Mr. Healey: Mr. Healeyrose——

Mr. Stephen Hastings: On a point of order, Sir Samuel. In view of the difficulty in which we find ourselves and of the importance of this statement, masquerading as a speech—[Interruption.]—

The Deputy-Chairman: Order. I hope that the Committee will allow me to hear the point of order.

Mr. Hastings: In view of the difficulty in which we find ourselves and of the importance of this statement masquerading as a speech, will you accept a Motion for the Adjournment of the Committee?

The Deputy-Chairman: I am not prepared to accept such a Motion at the present time.

Mr. Healey: The Government have also considered very carefully the effect of the cancellation on the economy and the balance of payments.

Mr. Stanley R. McMaster: On a point of order. How far is it in order for a Member of this Committee who is making a speech to read that speech verbatim?

The Deputy-Chairman: Copious use of notes is always allowed.

Mr. Healey: They have taken fully into account the dollar expenditure which would be involved in later years—

Mr. Godfrey Lagden: On a point of order, Sir Samuel. Is it not your opinion that this statement, which involves the livilihood of thousands of people, should be heard in circumstances other than this?

Hon. Members: Hear,
hear.

The Deputy- Chairman: That does not raise a point of order.

Mr. Healey: They have taken fully into account the dollar expenditure which would be involved in later years if it proved necessary to take up in whole or in part the option they have secured on American aircraft. Some of the resources which will be released by the cancellation of the TSR2 will need to be retained in the aircraft industry on new projects, but the Government expect that a substantial part of them will become available for employment elsewhere.
The Government have opened discussions with the companies and the unions so that there will be no delay in redeploying the resources involved. My right hon. Friend the Chancellor of the Exchequer, in his Budget statement today, estimated that the cancellation of the TSR2 would release resources in this country totalling about £350 million over the next fiveyears. As regards manpower, many highly skilled designers, engineers, and skilled workers of various kinds will become available. These abilities and skills are of a kind which we must apply in the civil sector of our economy if we are to achieve the increases in our exports which are essential to put our balance of payments right. We need to increase the output of goods which can be sold abroad or substituted for imports. But we cannot do this unless we can improve the relative competitive position of our own industries.
In an advanced economy, the growth of productivity and competitive strength is increasingly reflected by the rate at which new products and processes are developed and marketed. Thus, the release of highly qualified people from the aircraft industry must be expected to lead to an increase in productivity and the speeding-up of technological progress in other industries, and thus a widely spread benefit to the economy and the balance of payments. This, of course, will not all come about at once. But the Government hope that the growing technologically based industries, whose expansion is now hampered by the shortage of skilled professional staff and workers, will make the most of the opportunity which is now open to them to fill some of these gaps. The Government are keenly aware that many skilled workers will have to change jobs as a result of the decision


which has been taken. As many as 20,000 people may be involved, the majority at the British Aircraft Corporation Ltd. and Bristol Siddeley Engines Ltd. The terms of severance payment are a matter for negotiation—[Interruption.]—between individual employers and employees. The Government expect their contractors to act as good employers—[Interruption.]—and are willing to bear through their contracts a fair share of the burden of severance payments. The Government for their part will keep——

The Deputy-Chairman: Order. I think that the right hon. Gentleman is getting on to expenditure which is not Government expenditure.

Mr. Healey: No, Sir Samuel. This is Government expenditure. I was saying that the Government are willing to bear through their contracts a fair share of the burden of severance payments. The Government for their part——

Mr. Anthony Fell: On a point of order. Your interjection a moment ago, Sir Samuel, explains precisely our difficulty. This was to have been a statement, and if hon. Members are not to be able to elicit this sort of information from the Secretary of State, the whole statement becomes absolutely abortive and the purpose is not served.

The Deputy-Chairman: That is not a point of order. The right hon. Gentleman is entitled to speak on the financial aspect of this matter.

Mr. George Brown: Government expenditure is involved.

Mr. Healey: I just made this point. The Government for their part will keep in close touch with the firms and trade unions concerned and, through the placing machinery of the employment service and the provision of any necessary training facilities, will make every effort to help the people who are released to find alternative work which fully utilises their specialist knowledge and skill.
The benefits from the released resources——

Mr. Hastings: Mr. Hastingsrose——

Mr. Healey: I would have given way to the hon. Gentleman if he had not wasted the time of the Committee with bogus points of order.

Mr. Hastings: Mr. Hastingsrose——

Mr. Healey: —should be secured——

Mr. Hastings: Mr. Hastings
rose—

The Deputy-Chairman: The hon. Member must not persist.

Mr. Healey: The benefits from the released resources should be secured long before we are called on to make any substantial payment of foreign exchange for any American aircraft which the Government may later decide to buy. We have secured an offer of favourable credit terms from the United States Government which, broadly speaking, would mean that the burden on our balance of payments would be very small for some years ahead.
We must, over the next year or two, succeed in re-establishing our competitive position if we are to restore a strong trading position. From this point of view, we are confident that the case for the cancellation of the TSR2 is unanswerable.
At the end of 1964, the aircraft industry was absorbing too large a proportion of the country's resources and the military aircraft programme, apart from being out of phase with defence requirements, was placing an impossible burden on the economy and on the defence budget. While we in this country cannot afford in the future to undertake a wide range of highly sophisticated projects by ourselves, it is the Government's firm intention to retain a lively and viable aircraft and equipment industry of a size consistent with our resources and needs, both in military and civil aviation.

Hon. Members: Resign.

Mr. Healey: The decisions to go ahead with the development of the P1127 VTOL fighter and the Comet Maritime Patrol aircraft have already been announced. In addition, we are planning with the French the joint development of a strike trainer aircraft for the early 1970s. In the longer term, we hope to follow this with a more advanced project incorporating variable geometry, and preliminary discussions on this are already under way. There was no chance of accommodating any of these —[Interruption.] — in our defence—[Interruption.]

The Deputy-Chairman: Order. I hope that hon. Members on both sides of the Committee will allow me to hear what is being said.

Mr. Healey: There would have been no chance of accommodating any of these projects in our defence or national budget if the TSR2 project had remained in force.

Mr. Anthony Barber: On a point of order. Are you aware, Sir Samuel, that immediately behind you is the Paymaster-General, who is encouraging hon. and right hon. Gentleman opposite not to do precisely that?

The Deputy-Chairman: His presence has been audible to me for some time.

Mr. Healey: The possibility of collaboration with France on an airborne early warning aircraft is also being studied.

Mr. F. V. Corfield: On a point of order. The right hon. Gentleman is raising issues which cover the whole width of the aircraft industry which is of vital importance to many of our constituents. May we have your assurance, Sir Samuel, that when we come to speak we shall be able to speak as widely or wider than the right hon. Gentleman?

The Deputy-Chairman: All hon. Members can speak on this subject in the same way that it is in order for the right hon. Gentleman to do so. I hope that the Committee will allow me to hear what he is saying so that I can hear whether he is in order.

Mr. Healey: These projects will form a sound basis for the reorganisation of the industry's resources and capacity, certainly on a reduced scale, but also in a manner better calculated to serve the defence and economic interests of the country and to build up an effective collaboration with our allies in Europe.

Hon. Members: What about cancellation costs?

Mr. Healey: Those are included in the saving of £300 million which I have announced.

Hon. Members: Terminal costs?

Mr. Healey: These have to be negotiated in detail with the company. I can give only a broad order of costs, but this matter can be pursued further if the Opposition want to have a debate on the subject. My right hon. Friend the Chancellor of the Exchequer told the Committee that over the next 12 months, the 12 months with which the Budget is concerned, the saving will be £35 million, taking into account this part of the cancellation charges and termination costs which fall in the next 12 months.

Mr. McMaster: Does the right hon. Gentleman know the cost of the F111A Mark II?

Mr. Healey: There are firmer guarantees of the cost of this aircraft than we were able to obtain for the TSR2.
I know that many hon. Members, quite apart from those who raised bogus points of order—

Sir A. V. Harvey: I understood the right hon. Gentleman to say that he has a firm price from the American manufacturers for the F111 Mark II. Can he explain how he is quoted a firm price for an aircraft of which the design has been hardly begun, let alone completed, unless the Americans are prepared to give it as the price for getting rid of the British aircraft industry?

Mr. Healey: I did not say that we had a firm or fixed price for the American—

Hon. Members: You did.

Mr. Healey: Right hon. and hon. Gentlemen have not been listening very carefully for the last hour. If they had, they would have heard me say that we have a firmer price for the F111A Mark II than we have been able to get for the TSR2.
On reflection, hon. Members on both sides of the Committee will recognise that the decision which we have taken is of crucial importance not only to the military—

Several Hon. Members: Several Hon. Membersrose——

The Deputy-Chairman: Order. Hon. Gentlemen must not persist.

Mr. Healey: It is a decision of crucial importance not only to the military, but


also to the economic future of the country, but I must say that anyone who has sat here for the last hour would not have thought that hon. and right hon. Gentlemen opposite thought so.

Hon. Members: Resign.

7.19 p.m.

Mr. Christopher Soames: The right hon. Gentleman has treated the Committee with cynical contempt.

Mr. Maxwell: On a point of order. is it in order for right hon. and hon. Gentlemen opposite, when we are debating the most important Budget in ten years, to interfere in this way with the debate and waste the time of the Committee?

The Deputy-Chairman: That is not a point of order.

Mr. Soames: The right hon. Gentleman has just read out a statement to I the House which he should certainly have brought to the House yesterday when lie was first for Questions. He should have read it in the normal way as a statement to the House so that hon. Members on both sides would have had the opportunity in the normal way of questioning him. The right hon. Gentleman knows this in his heart of hearts. The right hon. Member for Easington (Mr. Shinwell) would never have done this, and nor would any of my right hon. Friends. They would never have treated the House with this contempt. This is nothing more than a straight statement—

Mr. K. Zilliacus: On a point of order. Is the right hon. Member for Bedford (Mr. Soames) in order in questioning the Ruling of the Chair, because the Chair ruled on many occasions when this point was raised by the Opposition that my right hon. Friend was perfectly in order in making this statement?

The Deputy-Chairman: There is nothing out of order. The right hon. Member for Bedford was only protesting that it was being done now instead of at Question Time. But he must only discuss the financial aspects of the statement.

Mr. Julian Snow: On a point of order. I wonder whether you would be kind enough, Sir Samuel, to advise me, and

possibly other hon. Members, whether we should follow the rules or conventions as prescribed by Mr. Speaker? You may remember, Sir Samuel, that yesterday Mr. Speaker said that points of order which, in his judgment, were bogus or irrelevant would in future be the subject of disciplinary action by him. Are we governed by the same rules? Secondly, as there have been, according to my calculations, 21 irrelevant and bogus points of order, should not this be borne in mind and reported back to Mr. Speaker?

The Deputy-Chairman: I think that the hon. Gentleman should leave it to me to decide whether points of order are bogus and whether any further action is necessary.

Mr. Snow: Further to that point of order. May I ask you, Sir Samuel, with great respect, whether you confirm that we are subject in Committee to the same rules regarding points of order as we are when we sit as a House?

The Deputy-Chairman: Bogus points of order are always out of order whether they are raised in Committee or in the House.

Mr. Soames: Since you have ruled, Sir Samuel, that I must confine myself to the financial aspects of this matter, and since this raises so many vital issues concerning both defence and the future of the aircraft industry, obviously this is not the time to take the matter further or for me to follow the Secretary of State into some of the realms which he covered and which went far beyond the bounds of finance.

Mr. Sydney Silverman: On a point of order. The right hon. Member for Bedford (Mr. Soames) has just said that my right hon. Friend the Secretary of State, in the speech which you, Sir Samuel, permitted him to make, went far beyond the bounds of order. Is not this a criticism of the Chair and is it a proper point for the right hon. Gentleman to make?

The Deputy-Chairman: I did on one or two occasions call the right hon. Gentleman to order. I do not think that the right hon. Gentleman should criticise the Chair, if he was doing so, in the way that he did.

Hon. Members: Withdraw.

Mr. Soames: You, Sir Samuel, had to call the Secretary of State to order twice for going outside the rules of order.

Mr. Silverman: On a further point of order. The right hon. Gentleman has now said that it was the Opposition's right and duty to call my right hon. Friend to order because you, Sir Samuel, would not do it. Is that in order?

The Deputy-Chairman: Mr. Soames.

Hon. Members: Withdraw.

Mr. Soames: It is quite evident from what you have said, Sir Samuel, that if one were to follow the right hon. Gentleman in all the ramifications of the cancellation of the TSR2 and in the purchase of another aircraft to take its place, it would be extremely difficult, to say the least, to keep within the rules of order in this debate. We deplore the manner in which it was done. We cannot understand why the right hon. Gentleman did not come to the House squarely and openly after Questions yesterday, when he was first for Questions, and stand up to the racket. He would not. No hon. Members——

Mr. Healey: On a point of order. Is it not the case that I answered 45 Questions yesterday? No Member opposite chose to put down a Question on this problem in a form which enabled me to answer it.

The Deputy-Chairman: We cannot go back to what happened during Questions yesterday. I hope that both right hon. Gentlemen will leave the subject and will concentrate on the financial issues.

Mr. Soames: In answer to the Secretary of State, since he has asked me a question, may I say that we were informed that the right hon. Gentleman would make a statement to the House——

The Deputy-Chairman: Order. I have asked the right hon. Gentleman to refrain from going back to Questions yesterday.

Mr. Soames: The right hon. Gentleman knows full well the extent to which we on this side deplore the abominable decision which has been made. As my right hon. Friend the Leader of the Opposition has said, a censure Motion will be put on the Order Paper and we

intend to deploy the case against what we consider to be an abominable decision which will affect very seriously both the ability of the Royal Air Force and the ability of the aircraft industry to fulfil its duties.

Mr. Herbert Butler: On a point of order. Is it in order for the right hon. Gentleman to discuss the efficiency of the Royal Air Force during the Budget debate?

The Deputy-Chairman: There is no harm in making a passing reference to it. But it is difficult for me to hear what the right hon. Gentleman is saying. If hon. Members would be quiet, it might be easier to keep the debate in order.

Mr. Butler: Further to that point of order. I can assure you, Sir Samuel, that it was possible for us here to hear it. Can you ask the right hon. Gentleman to be quiet?

Mr. Soames: I would ask the right hon. Gentleman one question. He said during his statement that the F111 Mark II was as far forward as the TSR2. Does he include in that all the electronics which he wishes to see in the Flll Mark 2 and have these been tried out? Is is not a fact that he is cancelling the TSR2 and reckoning to put in its place an aircraft not yet anywhere near so advanced and which is not even flying yet?

Mr. Marten: Before my right hon. Friend sits down.—

The Deputy-Chairman: The right hon. Gentleman has sat down.

Mr. Kershaw: On a point of order. Is it not the custom to preface a short intervention with the formal phrase "Before my right hon. Friend sits down"? Of course, he has sat down, otherwise one would not say it.

The Deputy-Chairman: That does not raise a point of order.

7.29 p.m.

Mr. Robert Woof: I am very glad to have the opportunity of participating in this most important debate. I should like to congratulate my right hon. Friend the Chancellor of the Exchequer on introducing his first major Budget. We


all realise that it is always a very great ordeal. It is an occasion to brace up nervous nerves, and I must say that he surmounted the trial with straightforward determination and good deliverance. After listening to my right hon. Friend's long dissertation, in which he presented the right side and the left side of the nation's balance sheet. I am profoundly convinced that his assessment must depend upon the progress of indispensable objectives in the national economy to make it much more viable.
My right hon. Friend covered a lot of ground and dealt with many complicated natters which, I submit right away, must require more time to delve deeply or to examine all the details, the figures and the analyses of the position presented. While they are of major fundamental importance, they should enable us to probe more deeply into the inner meaning of things, pass judgment and form conclusions arising out of the present state of economic conflict. Without intending to pronounce an absolute opinion, I want only to make a few observations.
It appears that the general mind is becoming more and more preoccupied with tremendous problems. However high or exemplary wishes or ideas may be, conditions of rivalry and strenuousness in economic and social issues have never before prevailed to the degree that they have now reached. There are, of course, antecedent causes in practically every situation. Nothing ever happens without cause and nothing ever happens without leaving behind some results.
We are passing so rapidly through so many moving events that it is impossible to avoid a haunting sense of meaning because we seem to be in the throe of conditions which are inexorable. In the daily sequence of events which is spread before use, most people dislike being told that their economic troubles are grave and incurable without a drastic alteration in their environment, bearing in mind that all sorts of circumstances, foreseeable and unforeseeable, might in one way or another affect the standard of living.
I also believe that until economic difficulties are solved so as to give the mass of people the means of a secure and tolerable existence, nothing will ever

solve the struggle in which one survives and another is cast out.
As the mind struggles to ascertain what is reasonable, with the mechanism and the forces that are necessary and capable of producing changes, we need to be reminded that year after year it has been made clear that the theme of the Budget was expansion without inflation and that expansion should continue at a rate that can be sustained without inflation. But the Budget not only deals with Government revenue and expenditure: it attempts to direct the course of the economy over the next few years.
We always wish to recognise things in their true existence and what relative truths we have to face. We need to acquire a picture of that part of the expenditure announced by my right hon. Friend the Chancellor of the Exchequer which represents investment to enable industrial firms in the productivity drive to provide jobs in the future and the measures needed in dealing with the problems of structural change in the old industrial areas.
There are many serious matters connected with such objectives. If we are to secure and maintain a faster rate of industrial growth or expansion, the first objective would be to bring about a more even spread of economic activity and to be able to make the fullest use of our resources.
For many years, particularly from these benches, I have appealed and drawn attention to the extraordinary dimensions and depth of the adverse economic transformation prevailing in my constituency. Being dependent on such heavy industry as coal mining, it has been, and still is, vulnerable to cyclical changes in the economy and the effect of redundancy has shaken the very foundation of the industry in the constituency.
The consequences of this fact furnish an example which should leave no one in doubt as to the meaning of planning and organising economic life. This leads me to say that one of the most important tasks incumbent upon my right hon. Friend the Chancellor of the Exchequer is to tackle the obstacles to economic growth. It is a slow process, but now that the Government have set in motion


the regional planning board in the North-East, its value will depend upon its being able to move Government Departments and industry into giving priority to the needs of long-term expansion in the economy in the North-East.
It is against this background that we would expect progress to be made in the provision of additional employment, by attracting new firms from outside the region. Therefore, we welcome any measures likely to give hope for those people in areas where redundancy is likely to develop through the contraction of older industries.
It is obvious that the Budget of a new Government is conditioned to some extent by the economic circumstances left behind by their predecessors. When power was transferred, the country was submerged in an economic crisis of great magnitude and complexity. The conditions that the Government took over included a trade deficit of £745 million, a rapidly worsening sterling crisis and sure signs that the country's internal economy was becoming overstrained.
It may be that the British economic and financial system is vulnerable because of London's pre-eminent position in the world, but as experience has come to be considered to be the best school in life it teaches us that as financial crises grow, the reaction on the London money market can be very severe. In fact, the latest Bank of England returns indicated that up to December last year £570 million had been drawn from the credits allocated by the International Monetary Fund and also foreign central banks to meet the crisis of sterling. It is to be noted that as interest rates were rising most of the year, they accelerated with the rise in the Bank Rate, which brought the total interest payments for last year to £428 million.
In these circumstances it was, perhaps, inevitable that the Budget should have produced increases in taxation and, to that extent, a measure of deflation. But in all the gaunt circumstances, the vital question before us is, how are we to encourage economic growth without inflation?
One solution which must be tried, and on which there should be no disagreement,

is the curtailment of unnecessary expenditure. Disagreement will probably arise as to what expenditure is unnecessary, but in fact the only field in which expenditure can be cut on a scale substantial enough to make any difference to our economic conditions is military expenditure. My right hon. Friend the Chancellor of the Exchequer this afternoon drew attention to the more serious aspect of the growth of overseas defence spending. The cost of military expenditure is growing all the time, adding enormously to this country's economic difficulties, and I believe that a reduction here would have an immediate effect in easing not only the strain on our internal economy, but also the strain on our balance of payments, since much of our military expenditure is in foreign currency.
I have previously called attention in the House to the necessity for looking more closely at these costs. Having served on a sub-committee of the Estimates Committee, and having studied the problem for the last three years, I have had plenty of opportunity to think about it. Obviously it is a problem which needs plenty of thought. Because of the need to keep up with the military Joneses, and the necessity of entering into long-term financial commitments in order to do so, military costs have a built-in tendency to rise at a much faster rate than any other form of Government expenditure if they are not curbed.
The cost of our forces in Germany is equal to a very considerable percentage of our trade deficit in Europe, and it is of interest to note that the West German Government have just announced a cut in their defence budget of 1,000 million Deutschmarks, representing a reduction of 6 per cent. on last year"s figure. At the same time, the German Chancellor announced that social benefits in West Germany were to go up by 2,000 million Deutschmarks, and his Budget also contained reliefs for less well-off taxpayers.
It may be that the basic reason why history appears to proceed in great cycles is that each generation retraces old steps which its predecessors have already covered, but for many years Ministers of the Party opposite allowed costs to rise, and I am now glad that my right hon. Friend the Secretary of State for Defence


and his colleagues have shown themselves to be alive to the dangers and lave at last ordered a review of defence expenditure.
There is no doubt that in such matters very good reasons can be found for things to go on as they are going on now. Equally, there are probably top people of high military rank who at this moment are busy producing good reasons why military expenditure should be as high as, or even higher than, it is now. But Mere are kinds of economies which we can least afford to make if Britain is to become a modern and efficient society, but in the light of the precariousness of cur national economic position, I suggest that there cannot be any better reason for cuts in military expenditure Man by simply stating that they cannot outweigh the pressing need for huge sums that are needed to improve and advance many vital social programmes. It would be a valuable way of tackling economic problems, and I hope that the Cabinet will continue to look very care-fully at the reasons advanced for our ever-rising military costs.
The last substantial point that I want to make is in reference to local government finance. I willingly accept the assurance of my right hon. Friends that steps are being taken to intensify work on the review of local government finance, and while we look forward to a situation which may be an acceptance of new principles, I only want to limit my remarks in this sphere.
Scrutinising the pages of history, I find it of interest that when the various monastic bodies were abolished, and the monasteries destroyed by Henry VIII from 1535 onwards, a duty of poor relief was imposed on the public at large. In 1552 an Act was passed empowering bishops to put pressure on their flocks so that the necessary money might be raised. Their power was further increased to enable them to bring before the justices any person who refused to contribute according to his ability to pay, and if he failed to pay he might be put in prison until he made a proper contribution.
The progress of the Act of 1597 during the reign of Elizabeth I provided for the raising by the overseer a weekly taxation of every inhabitant and occupier of lands

such money as he thought fit. But ever since then we have had nothing but complaints about people having to contribute to pay rates, and there is now evident and widespread concern among ratepayers of all classes.
In the face of financial pressures, the prospect facing many councils is one in which existing sources of revenue are inadequate to meet the ever-rising bills. The last Government introduced the Rating (Interim Relief) Bill, but they did not seek to define hardship. They left it to the local authorities to assess hardship in view of the resources and needs of the householders concerned. It is in this respect that while we must recognise that thrift began when men found it necessary to provide for tomorrow, many old people, whom I know well, have exhibited strength of will and determination to this purpose, but after a lifetime of endurance, trial, and patience, they are now faced with the excessive burden of quarterly rate bills as a consequence of increasing costs in local government services.
The Bill to which I have referred made provision for grants to be paid to rating areas with a high proportion of elderly people, but it meant that areas below the average of elderly population, which was I think about 120 per thousand, would get no grant whatsoever. It was also felt that a clearer guidance should be given on the definition of hardship. but we had to await the Allan Committee's Report, which is an assessment of the impact of rates on householders and the circumstances likely to give rise to hardship.
I am not going to take up any time in dealing with that Report, except to say that it stresses in one short sentence that
people in need can apply to the National Assistance Board for help.
The only comment that I want to make on that is that I know of many retired people who are just a few bob above the Board's regulation allowance, and are therefore ineligible for support.
This may seem a minor matter to some people but it is a real source of worry and concern in my part of the world. There is real hardship among elderly retired people as a result of ever-rising rates. This can be alleviated in the longterm only by transferring some of the


burden to the Central Government. In the circumstances of my right hon. Friends feeling their way towards securing the best means of new sources of revenue for local government, I hope that they will give every consideration to those elderly people who are adversely affected.
Finally, whatever surpasses our understanding in the past, the present and the future, I believe that my right hon. Friend has tried to judge the extent to which the economy needs to be tackled to gain stability. He has tried to do many things in his Budget. Any belief that recovery can be automatic must be dispensed with, as it is evident that prosperity will not come of its own accord. My right hon. Friend has had to face a very severe task in giving the closest scrutiny to the difficulties in which we are now plunged and no less by endeavouring to penetrate further towards a solution of our economic problems and guiding our resources to the most urgent needs.
It must demand a clear and positive understanding, and I wish my right hon. Friend every success in his efforts, because it must show substantially that it is of vital concern for the wellbeing of everyone in the country.

7.53 p.m.

Mr. Edward M. Taylor: I want to make four short points in connection with the Budget. Generally speaking, this is an appalling and miserable Budget, which will have a disastrous long-term effect on the country, and particularly upon Scotland. We have heard a great deal in the past about "stop-go", and the effect which this has on the economy. The Budget is "stop-go" with a vengeance and, together with the financial measures which came into effect late last year, it will have a very serious effect on Scotland.
I see that we have another move in the direction of an increase in general taxation. This is not the way to go if we are to become a dynamic and progressive country. We have been told that about £200 million will come in through the new taxes, but the figure that we should consider is that relating to the general increase in revenue which stems from the existing levels of taxation of higher incomes. The Chancellor mentioned

a figure of £380 million as stemming from this natural increase in taxation. We appreciate that higher living standards, higher wages and inflation in themselves create additional tax revenue. It means, in effect, that next year we shall raise almost another £600 million in taxation.
What effect will this have? I can see one obvious effect, which will be aggravated by the Government's other measures, especially those relating to the aircraft industry. In 1963 about 150,000 people left this country to go abroad to look for opportunities which did not seem to be available here. It is clear that if we have successive increases in taxation that figure will rise, and we will lose the best investment we have, namely, our children, in whom we have invested so much through schools, universities and colleges. This is the real danger that is brought about by increased taxation.
In this Budget and in the Budget that was introduced at the end of last year we saw a reversal of the policy which successive Conservative Governments adopted. In nine Conservative Budgets taxation was reduced. Although at the beginning of their period of office in 1951 taxation took over 30 per cent. of our total gross national income, by the time they left this had been reduced to about 25 per cent. In other words, progress in those 13 years was financed out of our expansion, and even then we were able to reduce the levels of taxation. This is the kind of progress that we must make, and this is the only way in which we can hold on to our young people and make ours a viable and progressive economy.

Mr. Ron Ledger: I am sure that the hon. Member does not wish to mislead the Committee. Is it not true that at the end of the period of Conservative Government Purchase Tax covered a wider range of goods than it did when the Conservatives came to office? Did it not include many things, such as children's clothing, sweets and soft drinks, which we never expected to be made subject to Purchase Tax?

Mr. Taylor: The hon. Member will appreciate that when we came to power the maximum rate of Purchase Tax was 100 per cent., and that it was reduced


successively by Conservative Governments. Although there were changes in the scope of Purchase Tax the total amount derived from it and its levels were reduced five times. This is the kind of progress that we want to make, and this is the only way in which we shall be able to create a viable economy which will offer real scope and opportunity for our young people, whom we must hold on to if we are to succeed.
My second point concerns the proposals relating to the aircraft industry. This matter will be discussed in detail, but I want to add my personal protest to those which have been made by my hon. Friends. It is a foolish and shortsighted policy to cancel the TSR2. If we are going to demolish the aircraft industry and make 20,000 people change from one job to another it is clear that in the future we shall be in real danger when we seek to negotiate aircraft contracts.
In the short term, looking to our immediate needs, it might be possible to get one aircraft at a reasonable price, but if in the future we have no real industry of our own and therefore no bargaining position, our economy will be endangered. I fail to see how any Government, especially a Labour Government, can have an independent foreign policy if we are to be completely dependent on other nations for the basic requirements of our defence policy.
In almost every debate that we have had on foreign affairs and on defence we have had difficulty in discovering precisely what is the policy of the Government on defence. We have had piecemeal proposals of one sort and another. I have great difficulty in seeing precisely what the Government's intention is. One day we have a White Paper on Defence, confirming the retention of our nuclear weapons and of our independent nuclear deterrent east of Suez, and the next day we read of 30 prominent Members on the Government side taking part in a protest march on behalf of C.N.D.
I must stick primarily to the Budget proposals. I therefore turn to the question of foreign investment. The proposals which the Chancellor outlined in this respect were amongst the most dangerous of all those contained in the Budget. We realise that in investing abroad we are

preparing for the long-term future, and are putting our economy on a sound foundation, apart from the good will which is created by investing abroad and the long-term benefit which this brings to the economy, together with the good will which it creates in trade and our prospects of increasing exports.
It is most dangerous to take any action which will adversely affect the economies of the countries concerned. The Chancellor said that in future, in deciding where foreign investments should go, we should think about the return that we should get from those foreign investments. He mentioned a figure of about 8 per cent. How can we possibly hope to get a return of 8 per cent. on our investments abroad from countries like Burma, where, a 99 per cent. tax is imposed on all profits, Ghana, where the rate of taxation is about 65 per cent., Indonesia, where we are not allowed to derive any profits at all, and our assets are expropriated, and similar countries all over the world which impose very high rates of taxation? It so happens that the very countries which have unreasonably high taxes are those which most need foreign investment and aid from this country.
It is clear that in those circumstances we shall prevent aid going to those countries which need it and encourage our investments to go to countries already fully developed. I think this a dangerous thing, and the only benefit which may accrue from this course of action is that we might be able to reduce Government expenditure by a small amount in saving the salary of the Minister of Overseas Development. It is clear that we shall lose good will and undermine the long-term prospects for our economy, and I feel that it would have been far safer and far wiser if the Chancellor had tried to get a specific return from investment, if he had tried to get together with the countries which are affecting our industry and to get a commercial pact accepted by all these nations. Certain measures might be taken to try to get the co-operation of the foreign Governments so as to obtain a fair return from our investments. That would be a sounder policy. It will not help in any way to take steps which will undermine the position of this country abroad.
My chief objection to the Budget is the effect that it will have on Scotland. The Chancellor referred to a position of buoyancy and confidence which existed in certain areas, and he particularly mentioned Scotland. If the Chancellor feels that the action he took at the end of last year and the action he has taken today has in any way helped to preserve this buoyancy and confidence he is being sadly misled. The buoyancy and confidence we have in Scotland stems from 13 years of hard work in that country. Hon. Members opposite may say that in the space of a few months they have changed the situation dramatically. There has been a change in the atmosphere but that is not the kind of thing—

Mr. Michael McGuire: Does not the hon. Member agree that the electors in Scotland gave their verdict on those 13 years?

Mr. Taylor: What the electors of Scotland decided was not related to the economic results of Conservative Party policy.
Let me be fair to hon. Members opposite. I feel that if there were a General Election next week, or within a month, or three or six months—certainly in a year—there would be a complete change in the situation. The people of Scotland can now clearly see that instead of benefiting from the false promises made by the Labour Party they are experiencing the reality of Socialist economic policy. That has done great damage to Scotland in the past and will do so again if we carry on in this way.

Mr. James Tinn: If prosperity in Scotland during the last few months is not due to the Labour Government but to the previous Conservative Government, to what were the previous years of unemployment due?

Mr. Taylor: I do not wish to take up time speaking only about Scotland when so many hon. Members wish to take part in the debate. Having worked in heavy industry in Scotland for five years before coming to the House, it is clear to me that, over the years, Scotland's problems have resulted from a dependence on heavy industry. That has been a traditional problem and in any slump Scotland was hardest hit. The previous Government

tried to tackle the major problems in the economy. They improved communications and spent money on big schemes which did not give an immediate return but will provide a long-term benefit to the economy. These included the Forth Road Bridge, the Clyde graving dock and the strip mill. This provided a foundation for the economy and for the last five years we were in fact building a new economy. Two new motor factories were provided and light industry was established right across the central belt of Scotland. A great deal of Government assistance, more than half, given under the Local Employment Act came to Scotland and the results are there for everyone to see.
Against this progress over the years, what have we had from the Labour Government? We had first a 7 per cent. Bank Rate which hit places like Scotland hardest because of the great amount of public expenditure. We had a credit squeeze, which had an appalling effect on local government progress and private industry. There has been a great shortage of money for housing projects, which is serious for places like Scotland where there is an appalling housing position. The general financial measures are even more drastic. The Chancellor said that when deciding on what taxes he wanted to levy he tried to choose those which would not hit places like Scotland too hard. In his previous Budget we had an increase in the petrol tax and if there is one thing which would hit Scotland harder than anything it is such a tax. We depend on transport for bringing down to the South the goods produced in Scotland and the petrol tax was the worst possible tax to choose from the point of view of Scotland. I challenge hon. Members opposite to produce any tax which could have a more general disastrous effect.
To day we have a further proposal to add 50 per cent. to the Road Fund licences of commercial vehicles. This is the sort of measure which hits places like Scotland very hard. Transport costs are a major proportion of costs in the Scottish economy and this is a very dangerous situation which will cause concern to the Scottish people. Here we have "stop-go" with a vengeance and it will affect Scotland extremely adversely. To give a specific example, the measures introduced last year, as a preview of this


Budget, had an adverse effect in Glasgow alone to the extent of an extra £180,000 up to the end of the financial year. I am sure that this Budget and the measures which will stem from it, and the attitudes and lack of confidence which will result, will have a serious elect on places like Glasgow.
I am worried by what the Chancellor himself said, that these various measures have a cumulative effect. There is some spare capacity in Scotland and even yet a measure of unemployment exists. The cumulative effect referred to by the Chancellor could prove serious. Although we have had all these measures which will hit my country very hard, we have not had any balancing proposals. The previous Government tried to redress the balance to enable the economy to create a new industrial structure, but from this Government all we have had are measures which will do a great deal of harm to the economy. Generally speaking, this Budget will be dangerous in the long-term because it includes greater taxation and we must not forget its effect on the country as a whole. I feel that it will be dangerous not only to the whole of the economy but also to the new industrial structure which was built up by the previous Conservative Government and which brought a measure of real prosperity to our nation. We must protect this, and when the Bill is discussed during its Committee stage I hope to have an opportunity to propose changes which may help my country and redress the balance in respect of measures which have been put forward today.

8.8 p.m.

Mr. Ron Ledger: I do not propose to follow the hon. Member for Glasgow, Cathcart (Mr. Edward M. Taylor) in the arguments which he has advanced. For one thing, the hon. Gentleman referred in the main to Scotland, and I do not know Scotland all that well. I do not think that Scotsmen generally will be as much afraid of this Budget as is the hon. Gentleman, and I certainly do not think that many of the points which he made were relevant. All the talk about taxation and the fact that there were tax reductions under the previous Conservative Government each year is not strictly true. There were tax reductions in each Budget just before a

General Election, but immediately after the election Income Tax was raised, or other taxes were raised, and everyone in the country knows it. The fact that the hon. Member is a comparative newcomer to the House is no excuse for his making this sort of statement. By now the country realises the facts, and because people knew what the Tories were up to they threw out the party opposite at the last election.
I have been in the House just on ten years and we have got to a most extraordinary situation. I am finding it difficult to get used to the sort of calm which we have now, to be able to say something and to have it listened to and to interject properly. This is becoming unusual because of the sort of behaviour which we get when major speeches are made.
Maybe the way in which the speech on the TSR2 was made was not the best way of doing this, but it seems to me that this being the way which had been chosen, it was better to listen to what the Minister had to say. The right hon. Gentleman the Leader of the Opposition made it clear that he would demand a debate on a Motion of censure. Fair enough. That would enable hon. Members on both sides to make their points if they want to. To have 23 bogus points of order when it was clear that the House wanted to get on with its business—there were many hon. Members in the House who wanted to make speeches who had been turned down time after time in the past because there was no time—gives more credence to the view held in some parts of the House that there is an organisation on the Opposition side which is deliberately obstructing the business of the House. I do not know what they call themselves, but they could properly be called "Parliamentary spoilers", because that is what they are. There is nothing useful in their behaviour. They add nothing to the debates, but they prevent——

Sir Edward Brown: Sir Edward Brown
(Bath)rose——

Mr. Ledger: I shall give way in a minute.
They prevent back benchers from having their rights in the House to have time to speak and take part in debates. It is up to back benchers on both sides of the House to defend——

The Temporary Chairman (Mr. Harry Hynd): This is not a debate on procedure. We had better get back to the Budget.

Mr. Ledger: You are right to tell me off, Mr. Hynd. I have made the point which I have been wanting to make for some time. My hon. Friends feel that if we behaved in a better way, back benchers would have a better chance to speak in debates of this kind.

Captain Walter Elliot: Would the hon. Member give way?

Mr. Ledger: I have not said anything yet. What I have said was ruled out of order, so the hon. Member cannot possibly intervene about that. I am about to talk on the Budget itself, and then I shall be only too pleased to give way to the hon. Member. I have not started yet.
The Chancellor obviously had an extremely difficult time. One of the points which appears to have been missed is that the Chancellor has brought in a Budget in circumstances which are not entirely of his own choosing. I am sure that right hon. and hon. Gentlemen opposite do not believe that the full effects of their 13 disastrous years have already worn off and that we are already able to do exactly the things which we want to do. Unfortunately, that is not so. The economy is like the engine of a car which needs changes but which cannot be stopped. We have to do many things which we do not find all that palatable. Until we have got rid of the influence of the policies of previous Tory Administrations, we cannot bring in our own policy. The Chancellor found himself in extreme difficulty in dealing with this situation. He has to deal with the problem of the troubles left by the previous Administration and at the same time carry the country forward as quickly as he possibly can.
In his dilemma, the Chancellor has produced a Budget which I shall not find it very difficult to defend. The first good point in the Budget is the Capital Gains Tax, which is long overdue. We know that the Tories brought in something of a Capital Gains Tax, but it always seemed to us who were in the House then that the Chancellor went out of his way to make sure that nobody was hurt by it

and that he was not serious about it. The hon. Member for Word, South (Mr. Cooper) is smiling. He knows that this is true. I am longing to hear what he has to say.

Mr. Cooper: I was smiling not at the Capital Gains Tax but at the knowledge that the hon. Member does not believe a word of what he is saying.

Mr. Ledger: The hon. Member can judge that later on if he likes. We shall have some voting to do ultimately. One of the things which I am looking forward to is hearing the hon. Member. I have listened to his speech ten times now.

Mr. Cooper: Fourteen times.

Mr. Ledger: It was 14 times. We used to have interim budgets from the Tories after each election and I came to know his speech year by year. I shall be very interested to hear what sort of Amendments he has, now that he is in Opposition.
Another point which is, in my opinion, justifiable is the action with regard to business expenses. I have never taken the view that business expenses are necessarily immoral. I believe that they can serve a very useful purpose. It is obvious that for years now they have been absolutely abused. There are a number of places in London where I have eaten, at my own expense, where I have been told by the managers and the owners that if it were not for the business accounts—at night-time and not in normal business hours—they might have to close down. This is a shocking state of affairs, when all of us, including people who have never been into a restaurant in London or any other big city, are helping to finance this sort of spending. This action is long overdue.
The initial allowance on cars is an extremely good thing to abolish. I am finding it extremely difficult to remember which of my friends own their own cars. There are very few, it appears, who buy their cars themselves. Every other one seems to have his car bought for him by someone else. Because of the initial allowance and the annual allowance it is we who are paying for these cars. Psychologically, this is an extremely good move. It will help the Government in coming to an agreed incomes policy. This, once


again, is another move to prepare the ground in this
respect.
Another point which I was very pleased to hear was regarding the special accounts at the post office. These accounts offer a wonderful service to millions of people who do not have a normal banking account, and that is only right and proper—the hon. Member for Ilford, South apparently agrees on this. He will agree with many more things when he reads reports of the speeches tomorrow. It is right and proper that these people who do not have normal banking accounts will at last get some sort of justice.
The extra tax on cigarettes, spirits and beer will take a little more explaining, because even more so for me, if I appear to be too much in favour of this, my constituents will remind me that I neither drink nor smoke and that this will not Le a burden on me at all. But I enjoy seeing people drinking and smoking, so I do not want to see this sort of pleasure curtailed in any way. One of the things which affects all Chancellors, whether Tory or Labour—or even, miraculously, Liberal—is that they know that although this has the immediate effect of cutting down expenditure on cigarettes and drinking, eventually the habits reassert themselves and the consumption of these items continues at the old level. We ought to say to the Chancellor that, looking at the Budget as a whole, these increases are not unfair, but that as Labour policies begin to make themselves felt we shall expect to see some sort of parallel reliefs in the years to come.
I do not know why hon. Members opposite are so obsessed with the TSR2 project. They speak as though it means the end of the aircraft industry, whereas it has been made clear that that will not be the case. We need not only military aircraft, and in many ways it would be better to spend more money on the production of civil aircraft. If we tie up in a small nation like ours too much of our design and development potential in one project, other improvements which the country needs to increase its standard of living will not take place because of the lack of skilled manpower.
My right hon. Friend the Chancellor mentioned, for example, that the computer industry, among others, is sorely

in need of design and development teams. At present too much of our industry is old fashioned and needs to be brought up to date. So long as these skilled people are occupied on one project in one industry the other industries have no chance of obtaining their services to make improvements. Only if these improvements are made will we be able to compete with countries like Japan and Germany, which are not fettered in this way.

Sir Robert Cary: Is it not important to remember that we have never before gone in for compulsorily redeploying people, except in war-time?

Mr. Ledger: The Tories have for years used the excuse that they did not want to take compulsory action. As a result, we had 2 million to 3 million unemployed before the war and while that was going on the Tories continued to claim that people should have the freedom to be unemployed and starve. It was nonsense then and it is nonsense now. All sensible people agree that the Government must take action to redeploy people, resources and finance.
I regret that the Chancellor did not refer in his speech to the question of giving help or relief for the Co-operative movement. References were made to the late Lord Mackintosh and to what had been done in the National Savings movement. I wholeheartedly agreed with my right hon. Friend's remarks on that issue, but it is essential to remember that the Co-operative movement is, among other things, a thrift organisation in essence and that each year £40 million to £45 million is paid back to the cooperators in the form of dividends. I do not have all the statistics, but I understand that in London more than £1 million goes back to the co-operators and that of that amount about 50 per cent. is left in the movement in development bonds or savings. The small savings in the Co-operative movement, unlike Post Office and some other forms of savings, are not treated fairly at present.

Sir Edward Brown: Is there not in the Co-operative movement an arrangement whereby a certain amount is paid to the Labour Party? Is that not paid as a political payment, as well as the other dividends?

Mr. Ledger: If the hon. Gentleman intends to show his ignorance to every one, including those in the Co-operative movement and elsewhere, that is his prerogative, but I assure him that what he says is a load of nonsense.

Sir E. Brown: Tell us the position then.

Mr. Ledger: That has absolutely nothing to do with the point I am making. Millions of people have small sums saved in the Co-operative movement. No tax relief is given on the interest which they receive from their savings. I suggest that that is unfair and unjust. We in the Co-operative movement do not expect to receive privileges from a Labour Government. However, we expect reasonable justice, and I hope that at a later stage, my right hon. Friend will take steps to put the matter right.

8.26 p.m.

Mr. A. E. Cooper: I hope that the hon. Member for Romford (Mr. Ledger) will acquit me of any discourtesy if I do not follow him exactly in his arguments, although I will be dealing with some of the points he raised.
Let there be no doubt in anybody's mind about what is happening and has happened. There is no crisis of confidence in the United Kingdom or in our people. There is only a crisis of confidence in the Prime Minister and the Labour Government. The Prime Minister is untrusted and irresponsible and his pre-election speeches were the prime reason for our difficulties today.
The state of our finances was well known and my right hon. Friend the Member for Barnet (Mr. Maudling) had no difficulty in handling the situation, despite the election fears. The present Prime Minister persisted in crying wolf throughout the weeks of the General Election and was most surprised when foreign bankers and others overseas believed him. He also made wild promises for improved social benefits without increased taxes. Not only did he fool the electorate but he fooled those of his colleagues who were subsequently to become some of his Ministers.
I will quote one or two examples. The present Chancellor of the Duchy of Lancaster, in his election address, described himself as Labour's expert on

taxation, finance and pensions. Very modest people they are in the party opposite. He said in his election address:
Labour will not be a spendthrift Government. It will not need to increase the general level of taxation to pay for its programme.
The right hon. Lady who is now the Minister of Overseas Development stated in her election address:
Widows and others are worried silly at the rising cost of living and by Income Tax.
The right hon. Gentleman the present Secretary of State for Education and Science commented in his election address:
Those of us who earn money are all heavily taxed.
It was going to be one of the early tasks of a Labour Government to improve the taxation system to give some help to these overtaxed people.
The November Budget was designed to provide funds for improved social benefits and it put the onus for the higher taxation on the alleged inheritance from the Conservative Government. It was a palpably bad Budget. It had the worst possible effects overseas. Today's Budget is not the Chancellor's. That right hon. Gentleman is only the monkey. The organ grinder is in Number 10. Its content is directly the result of the Prime Minister's irresponsibility.
We are having to cut back for no other reason than to satisfy overseas bankers as a result of their complete lack of confidence in the Prime Minister and his friends. For the second time in 20 years a Labour Government have put us in hock up to our ears, and, for the third time in five Labour Governments, have brought us to the verge of bankruptcy. This is no coincidence but demonstrates the complete incapacity of the Labour Party to govern——

Mr. Eric S. Heller: If this is such an irresponsible Budget, perhaps the hon. Gentleman would like to say why his party did not vote against any of the Resolutions put to the Committee this afternoon.

Mr. Cooper: I have not yet discussed today's Budget. I have only so far discussed the November Budget. Perhaps the hon. Gentleman will wait but, in any case, if he had listened he would have


known that my right hon. Friend the Leader of the Opposition explained quite clearly why we did not press a vote on any of these Resolutions today.
The surcharge was both illegal and stupid. It put up prices over a wide range of products and, together with increases in the petrol tax, set in train rising prices and demands for higher wages—much to the astonishment of the Government. The credit squeeze and the high Bank Rate have taken us back to "stop-go" with a vengeance. The present high level of activity is due entirely to the policies of the previous Government, and is in no way due to any policies put forward by the present Labour Government. There are signs of a recession later this year, which the Chancellor of the Exchequer himself admitted. With this high level of activity, it is a very serious matter that we can be thinking in terms of a recession later in the year.
The First Secretary says "Forward," and the Chancellor says "Back". As the Red Queen said to Alice, "In my country you have to run very fast if you want to stay in the same place." The Government, if that is the right phrase for them, are bemused, confused and frightened, and are wandering around in the desert with no star to steer by——

Mr. McGuire: The hon. Gentleman has said of the November Budget that his right hon. Friend the then Chancellor had said that he could deal with the situation. How was it that when my right hon. Friend introduced the November Budget the ex-Chancellor said that my right hon. Friend had anticipated all the things he would have done to remedy the effects that were obvious?

Mr. Cooper: My right hon. Friend did not say that we would have had to deal with the same problems. The hon. Member should read some of the speeches made by his right hon. Friend the Prime Minister, and then consider the stupid panic action taken by the Labour Government, which created an absolute loss of confidence throughout the world and has cost the country—let the hon. Gentleman make no bones about it—through the stupidity of those on the Treasury Bench, hundreds of millions of £s.
For the second time in 20 years, a Labour Government have borrowed £1.000 million, and what we were doing

during the last 13 years was repaying debts incurred by the Labour Government in 1947. Now we have a debt of another £1,000 million round our necks which, no doubt, we will have to clear again. The Prime Minister said at the weekend that we were back at the top table; yes, indeed—but as suppliants taking the Socialist begging bowl to get what crumbs they can from the capitalist table.
Let us examine in detail our financial position. The Government even in their White Paper, and in the Economic Report on 1964, and in the preliminary estimates of national income and payments, have suceeded in confusing the private and the public sector so let us examine and analyse what in fact the figures show. I address my remarks particularly to the Financial Secretary. The figures show quite clearly—and these are the figures, not of a Tory Government but of a Labour Government—that on current trading—that is, visibles and invisibles—our account for the year had a surplus of £57 million.
The deficit of £744 million is brought about entirely by Government expenditure, official investment and private investment, broken down as follows: Government expenditure, as shown on page 17 of the balance of payments document, £431 million; official investment, shown in page 19, £120 million; and private investment, also shown on page 19, £251 million. These three figures together total £802 million. There is a balancing item of £1 million. It is this £801 million from which the £57 million of surplus on trading account has to be deducted, which gives us our deficit of £744 million.
If our exports improve and our imports diminish, we can afford these overseas spendings. It was interesting to note that this afternoon the Chanceller of the Exchequer spent some time discussing our overseas spendings. But exports will not expand dramatically and if our imports, which are in the main basic raw materials, are curtailed substantially industrial activity will decline.

Mr. Stan Newens: Is the hon. Gentleman suggesting that all the difficulties to which he has just referred are the responsibility of the Labour Government who came to power only


last October? Does he argue that the Tory Government who then went out of power left the economy in a healthy state?

Mr. Cooper: Yes, I am suggesting that the economy was in a healthy state, for reasons which I will explain. I said earlier that the extent of the deficit was well known, because it was published regularly in White Papers right up to the time of the election. Hon. Members must get it into their heads that there is a very great difference between current trading account and capital spending. I frankly admit that if we had a surplus on current account running into many hundreds of millions of £s we would not have any problem such as this. Of course we would not. What we have been trying to build up over the years is this big current account surplus which enables us to indulge in this sort of expenditure.
However, we have certain obligations to other countries which have been approved by Parliament over the years and which I do not think many of us would like to see changed. For example, our aid to under-developed teritories runs into hundreds of millions of £s every year. Then, for example, this year a substantial amount was expended by the oil companies to acquire new properties in overseas countries, which is part of the seed corn which over the years will build up trade and revenue for us. These were matters of deliberate Government policy and, had a Conservative Government been in office today, there would have been no trouble whatsover in managing this.
There is reason to suppose that in 1964 there was stockpiling of about £300 million. I will admit that the exact figure is speculation on my part, but it is based on certain realities which again are taken from the balance of payments figure, which shows a proportionate increase in raw materials as a result of the increase in the growth of the national product. One can get an approximate figure of what is required year by year to bring about this greater activity within the nation. On the basis of that, the probability is that there wast stockpiling in 1964 to the tune of about £300 million. We can reasonably expect that that will not recur during this financial year.

Therefore, this will be a considerable benefit to the balance-of-payments position.
We are faced with very large spendings on Government account for aid, military expenditure and investment accounts, and over the years, not just this financial year but every year, we must keep the closest possible watch on this overseas spending. I made a speech on this subject some years ago during a Whitsun Adjournment debate and spoke of the whole question of overseas aid. No matter if our hearts are in the right place, if we have no money in the bank we cannot help territories overseas. In other words, we cannot invest a deficit. We are a trading nation and our whole policy must be designed to improve the competitive nature of our industry so that we have the exports we need if we want to do these Samaritan acts all over the world.
I agree with the Chancellor of the Exchequer that there are strong arguments for an investigation into private investments, but we must be careful that we do not blight the seed corn. Private investment, whether in shares in companies for control or to acquire new business, brings back to this country over the years considerable revenues which are a great help towards solving our balance-of-payments problems. It will not be lost sight of that since the end of the war we have had to rebuild completely our portfolio of stocks and shares in our overseas territories. We had to get rid of practically the lot as a result of the war. We had to build up from scratch and the figure announced by the Chancellor today of £11,000 million in investment overseas, all done since the war, is a quite staggering performance. We must make sure that this continues and is not allowed to be impeded in any way.
The Budget must be considered in the context of whether it will help us in our balance of payments, whether it will encourage our people to invest their money overseas, and encourage those who want to go into the export markets. Will it do all the things that we all know are necessary for the country if we want to survive? I find this a gimmicky Budget. I cannot find anything much in it which will encourage the working man to put forward a greater effort. I cannot see anything in it which will help the business man who wants to go forward.


It seems to me that all we shall get out of it is a standstill right across the board.
I want to appeal to hon. Members opposite. They seem to have from time to time a pathological hatred of a number of things—for example, Spain, Portugal and expense accounts. Mention any one of these things to a member of the Labour Party and he is more likely to blow his top about it than about anything else. He has a quite irrational reaction to these subjects. Hon. Members opposite do not mind how these prejudices get the better of them as long as they have the prejudices and can exercise them from time to time.
I want to tell the Committee something about expense accounts. A great deal of nonesense is talked about this subject. I speak as a sales director of a company in control of staff and responsible to my board as managing director for running a very substantial business. Our job is to make profits, to make the business pay and to make it go forward to contribute to the export markets of this country. I do not approve of expense accounts that I regard as abnormal from anybody, and there is not one of my men whom I know of who would take advantage of his position.
Hon. Members opposite talk about cars. All they seem to have in their minds is that company directors run round in lush cars, Rolls-Royces, Bentleys—the lot. They do not take any account of the hundreds of thousands of ordinary commercial travellers who spend all their day on the road travelling for their companies in cars provided by the companies. There is nothing wrong in this. It is a convenient way for men to get about the country and do their job. They do not abuse it. It is part of our business life. There is one hon. Member present who, I know, is a business man, and he will accept that what I am saying on this issue is absolute sense. He knows perfectly well that, as it applies to the business world generally, what I am saying is right.

Mr. Ledger: We do not object to these people having cars and we do not object to their firms paying for them. What we, object to is the way they are paid for through the initial and other allowances. Many millions of people who cannot afford cars for themselves have to pay

through taxation for the cars which companies provide.

Mr. Cooper: One has to look at any item of taxation in relation to the object one is seeking to achieve. In this case, one is seeking to provide an incentive to industry to make itself more efficient, to get men on the road, to get them working, in order that they may promote sales, create employment, make their companies more competitive, and so on. One can think of all sorts of taxes that, as individuals, we might think are of no particular direct benefit. We have to accept this sort of thing. The classic example is rates. Hundreds of thousands of childless people pay rates, 75 per cent. of which go on education expenditure, but, merely because they have no children, they do not grumble and say. "We object to paying the education rate because we have no children". It is part of the general industrial and taxation set-up of the nation.
I am the first to admit that, no matter what class of society one is in, one will always find abuse. I have no doubt whatever that, when the new regulations come in under the Finance Bill, someone will find a way of getting round them. This sort of thing has been going on since the dawn of history, and no Government yet in this country or anywhere else have succeeded in closing every loophole. But we shall have to look very carefully at the expense account question during the Committee stage. There are men, particularly commercial travellers, who will be very hard hit. They are by no means extravagant spenders, and their position must be properly safeguarded. If companies indulge in expense account living of this sort, as is suggested, and they have to pay for it themselves, without a tax deduction, in the end the Revenue will lose because the amount of money which it will receive as a result will be reduced.
I shall say nothing tonight on the two most important sections of the Chancellor's speech, those dealing with overseas investment, capital gains, and the Corporation Tax. Everyone will admit that these are complicated and highly technical matters and that we are entitled to think a little about them and read carefully what is said before we come to a judgment.
A word now about the TSR2. This is a scandal, first, in the cancellation of the project, and second, in the way in which the Government announced it to the Committee and the country. It showed a complete contempt for all Parliamentary procedures. More than that, it was a disgraceful, shabby and sordid business that the Minister gave the Press and the Exchange Telegraph full information about it before the House of Commons received the information. It was a disgraceful episode the like of which I hope will never be repeated by this or any other Government.
The TSR2 is the finest aircraft in the world. It is not just a matter of saying, as one hon. Member did, that it would be better if we spent the money on some civilian aircraft. The aircraft industry is not unlike the motor car industry. One might disagree with motor racing, thinking it highly dangerous, wasteful and so on, but hon. and right hon. Members opposite must recognise that it is only as a result of motor racing over the years that we have developed first-class engines, tyres and braking systems which will stand up to the stresses and strain of modern motoring. That is part of the price of research and development in this country.
Similarly, with aircraft. The TSR2 is the most sophisticated aircraft ever built. Its contribution to future aircraft design and construction would be immense. But we are throwing all this away. The design teams will not stay here. They will go abroad—to America or France or somewhere else where their brains and special skills will be appreciated and paid for. We seem to be selling out to America and France in defence systems. I suppose that one of the projects of the Government will be to set up in some under-developed part of England a bows and arrows factory. Much good that will do us in the years ahead!
No one can doubt that the present travail through which the country is passing is the direct responsibility of the Prime Minister and the Labour Government. The arrogant ignorance with which our affairs have been handled is implicit in the Budget. The only real and positive step that we can take to free our country from the dead and

dreary hand of Socialism is to get rid of the present Government as quickly as possible, and this must be our task.

8.52 p.m.

Mr. Robert Sheldon: The hon. Member for Ilford, South (Mr. Cooper) referred earlier in his speech to what we could afford. It is a pity that he did not use the same criterion about the TSR2. But he made a valid point about overseas expenditure and the need to reduce it, and I shall have something to say about that later.
To return briefly to the TSR2 incident this evening, I think that there may have been a lesson to be learnt from the rather over-excited event. The Minister of Defence was, I believe, trying to make an extremely valid point, one which will become even more valid in the months and years ahead—that defence really is an aspect of our economic situation. It is no use discussing defence and its costs without bringing in the various aspects of budgetary control.
One of the things we learnt from the Estimates Committee was that in one or two very revealing remarks by Service personnel it was categorically stated that if a certain expenditure on defence was needed, the cost at that time, two years ago, was not assessed. If it had to be done, it was done. This is the way the defence burden has been carried by the country for many years. The fact that for the first time a defence statement of this importance is made in the context of a budgetary debate is of some value.
The Chancellor today laid emphasis on the balance of payments, and it was only right that that should have been done. He mentioned his great hopes about tax reform in the years ahead. I hope that this spirit will blossom and bear fruit in the next few years. Certainly, if my right hon. Friend intends to carry on the reform in the spirit in which he started this afternoon, the next few years augur very well.
It is becoming common form nowadays to say that Budgets are becoming extremely sophisticated and that Budget requirements now are very much more complicated than they ever have been. The need to take into account growth as against exports, the position of the pound sterling and at the same time keeping our economy on an even keel, the need for increased revenue, and the need also for fairness in our tax proposals—all these


are various elements that obviously have to be taken into account.
But, in judging the Budget, probably one of the most important aspects is what priorities it gives to the growth of investment in the economy as a whole. Investment alone is not enough. It must be selective. It is no use inaugurating a boom, because a boom does not give selective investment. Tax allowances are possible as an encouragement to certain investment, but far better are the proposals now being made—my right hon. Friend touched briefly on them—for giving certain subsidies to industry for various kinds of machinery and equipment.
I would go even further and say that what we need is controlled investment, and that to do this we need not only to subsidise but to subsidise the kinds of investment we want to encourage. In order to be able to do this, it is most important that Government should have a greater understanding of industry and its needs than it has now.
The report on investment in machine tools is most revealing. It is an indictment of industry that it did not pursue its own best policy in investing and did riot understand how much it would receive from allowances and how much benefit it would gain from investing in machine tools. That is common ground.
What is not so easily accepted is that this is also in its way an indictment of Government—that Government does not understand industry and does not understand the way in which it calculates the costs of capital equipment. If government wishes to influence industry, it must understand it and remember that government needs to influence industry far more than industry needs to influence government, because investment is the key to our whole economy.
Yet, while investment is the key to the whole economy, government, at a crucial point of investment, did not understand the needs of industry. It is all very well to talk about the discount cash flow system when the normal system used by industry is pay back accounting. Industry uses a very simple method in calculating whether or not a certain capital expenditure will pay, and surely industry much be allowed to judge what is best suited to its needs.
Admittedly, we all know that when it comes to very large-scale investment rather more finely balanced forms of assessment are needed than this, but in the ordinary course of investment decisions—the ordinary purchases of £300, £400 or £500 machine tools—this type of accountancy is not usually in force. Nor is it really needed except to satisfy the thinking of Government Departments.
We must also remember that, to the Commissioners of Inland Revenue the future profits of an industry are certain but to each manager who faces ruin three times weekly the future is far less certain. He cannot base himself emotionally on indefinite future profits because he is aware of all the complexities and uncertainties and possibilities of disaster which readily face any person engaged in any business enterprise.
While it is true that these fears are exaggerated, if Government wishes to influence industry it must know its fears and hopes and the way it works in practice. I believe that it is the rôle of the Board of Trade, among other Government Departments, to go out into industry to learn how it behaves, to understand it and thus be able far better to assist it. As we know, before framing his Budget the Chancellor of the Exchequer receives representations, but this is no substitute and is not enough. As government takes on more functions of control over the economy, so its knowledge of industry must be at first hand and the reading of reports is no substitute for that. In further judging the Budget, great importance must be attached to exports. It is not sufficient to cut down consumer spending and expect exports to rise, and my right hon. Friend recognised that in his statement today. I hope that in the months to come we will see rather more subsidies not for direct exports, not export rebates and so on, nor, possibly, even of credit services, although they are likely to be of considerable value. What I hope that there will be additional to these are subsidies of various extra services which can be offered to industry wishing to use certain export services.
Information services, language schools and so on can all be of value, but the most important is the rôle of the Board of Trade in all this. The Board of Trade cannot sit here in London and discuss how to increase exports. I understand


that throughout the country there are eight or ten people from the Board of Trade trying to encourage industry to export. That is insufficient. If the Government want to find out what is happening in industry, they need more people going around and taking part and learning something of the decisions which industry faces every day. This would be money well spent.
The rôle of sterling was obviously an important part of the Chancellor's statement. On this matter we are all on common ground. We all know that we must defend sterling, short of massive deflation, and we all know that devaluation is not the answer. But we should also accept that if there is a compromise between an expansionist policy and foreign support, this is also largely a legacy of the previous Government.
We all know, too, as the hon. Member for Ilford, South (Mr. Cooper) mentioned, that the cost of our military expenditure overseas must decline. I got a written Answer from the Ministry of Defence this afternoon saying that the cost of our forces East of Suez was expected to be about £320 million in 1965–66, including about £100 million across the exchanges. I have been trying to obtain the true figures for some weeks. Although given in good faith, the figures I was given this afternoon do not reflect the true cost, because they leave out the overhead part of the cost of our expenditure East of Suez. It is fairly clear that the cost of our operations East of Suez is probably well in excess of £400 million and possibly up to £500 million if a true apportionment of all overheads is made. This burden, which threatens to stunt the whole of our economic growth, is something which we will finally have to start thinking of cutting down over the years ahead.
Investment overseas received a good deal of attention from my right hon. Friend. He made some extraordinarily valid points which I have not heard before and which were welcome to the Committee. He pointed out that rather less return was obtained from investment overseas than at home and he proposed measures to stem the outflow by up to £100 million. His argument was completely valid, but there is another matter which he might consider and which would

show that the rate of return was even lower than he suggested. We all know that over the past five, six or seven years difficulties with the £ have regularly occurred. These have led to a fairly high Bank Rate being normally accepted as part of our economic structure and the increased cost of that high Bank Rate must be attributed to this foreign outflow of capital. This makes the return of capital consequently even less than might be thought.
The Chancellor of the Exchequer dealt with the principles of fairness rather well. We have a very efficient system of revenue collection. We all accept this. But the criterion should be the very simple one of "ability to pay". In mediaeval times tax collectors worked only on this. The criterion of ability to pay must govern the whole of our taxation system. If a person has a capital of £50,000 and pays less tax than a person with an income of £1,000, this is so manifestly unfair that only a complicated tax system might be able to conceal it from the eyes of the ordinary people. Any move in favour of this simple criterion of ability to pay should be welcomed by the Committee. It should also welcome the capital gains tax of 30 per cent., the disallowance of enertainment expenses for tax purposes. and the removal of initial allowances on motor cars.
Unfairness has gone on year after year. Each year we have had tortuous complications to remedy enomalies and to stop loopholes when everybody knew that what was needed was a drastic change of our taxation structure. The largest anomaly has always been that the simple criterion of ability to pay was not used. The obvious anomaly, and probably one of the biggest anomalies, is that between the classification of Schedule D and Schedule E. We have been too busy perfecting the small inequalities of an unfair, esoteric system. People understand the simple reasons, and it is rather unfair to conceal them too much.
We should be clear about the two kinds of investment. This Committee often thinks of investment as meaning a transaction on the Stock Exchange. But the more crucial aspect of investment is in industrial investment which, obviously, has some relationship with investment in


the Stock Exchange, but is not a direct link with it. When we think of encouraging investment, we must be clear what kind of investment we want to encourage.
The reduction of allowances by Corporation Tax has not worried the Chancellor of the Exchequer unduly. This, feel, is a further indictment of the way in which industry has refused to take full advantage of the tax allowances. It is fairly clear, therefore, that one of the things that we need to do is to simplify taxation, and I look forward to hearing further suggestions next year from my right hon. Friend on this. We must remember that the people who are really responsible for the industrial development of this country did not understand or did not make use of the investment system as it then was.
One of the difficult aspects of a Budget is that it is an annual affair. The Chancellor of the Exchequer this afternoon said how difficult it was to forecast what the position would be early next year. It is a hoary question—it comes up year after year—as to how often we should have a Budget and how often we should make economic plans. It is essential to grasp the simple principle that circumstances should determine the timing of eonomic measures rather than that economic measures should be determined by the timing of a Budget. What we need is full and easy control.
The difficulty about an annual Budget is that we have to wait so long for it that everybody starts anticipating it, often wrongly. The effect upon trade and the uncertainty that it causes is known to us all. The obvious example is Purchase Tax, in which many people this year probably burnt their fingers a little in anticipating certain changes.
The difficulty is that when one leaves decisions until one comes to the annual ritual, one finds that the situation has gone so far that a certain amount of over-correction is necessary. This is one of the greatest difficulties in having Budgets at such long intervals. We must abandon the idea of cataclysmic Budgets in which we change everything for another year. What we need instead is a full, accurate control of the economy and for this we need the information so that we can regulate the way in which the economy works.
The trouble is that in the past we have had the information too late and because of that the regulation has had to be too violent. We want, not so much stop-go, but frequent and gentle movements on the accelerator. What we have had over the past number of years is a brake and an accelerator which can be used only once every mile. And so the violence of using the brake or the accelerator has been only too evident. We need, not the violent upheavals which this causes, but a steady transition. The regulator which has been tried is only a younger brother to stop-go.
What we really need in controlling the economy is a fine screw. I suggest that examination might be made of the use of National Insurance contributions to promote these gentle movements. The use of the fine screw would mean changes before the situation gets out of hand, changes in the economy almost before the change itself is observed. In engineering terms, we want a servo mechanism, a feedback for the economy. We want to be able to control it as soon as we find that there are movements in a certain direction.
This information is required so that action can be taken immediately. The difficulty about the statistics on which we rely to take the action is that they are out of date the moment they are published. This is inevitable. Statistics only record what has happened, and the state of industry is not determined by a reading of the statistics. Business men and men in industry know what is happening in their industry long before any statistics are published. This is the information that the Chancellor of the Exchequer requires and that the Board of Trade should have also. There would then be no need for the surprises which are caused by basing oneself on inadequate statistics of the kind we have seen.
The way to do this is obviously by the use of sample statistics. Sample statistics should be made available almost on a weekly basis and promptly fed into computers for analysis. They could then provide the moving picture of a living economy and not the still photograph of a dead corpse. The living being is what our economy really is. We discuss the body here, but the living, breathing organism is something that is


quite alien to the Board of Trade and the Treasury.
The Treasury will need to reassess its whole rôle of information, built upon banks of computers, if necessary. It needs this information. It needs these samples controlled by the computers being able to give weekly or monthly figures that are as near to the real living organism as is possible. Had we done this, we might have been able to be rather better informed last year of what was happening in exports and not be taken in by all that guff which we heard last year when we had to rely on the F.B.I. for the only statement of any value. This is a sad commentary on Government, that we had to rely on that with all its inaccuracies, because there was nothing better available, and there we were all the summer of last year waiting for a rise in exports when action could, and should, have been taken because the Government should have known what was happening.
The same can be said for imports, only it is not so difficult to discover the intentions of importers, the intentions of industry. It is very easy for the Government to get firms to co-operate, as the Chancellor accepted this afternoon. We can take sample statistics of the few firms responsible for large decisions in typical industries. This can be the sort of information on which Chancellors can build.
We ought also to have information on manpower, information of a shortage here and a surplus there. Sample statistics of this can come out. The regional differences in National Insurance Contributions could well be the fine screw that could make the economy work in the way that one decides and wishes. In advance of any catastrophe we can decide and organise.
Prices, too, are important. Manufacturers decide to raise prices, but we hear about them only months and weeks later, when prices have gone up. We should know about these prices when they are being planned. If we had the assistance of industry, assistance that is available, we could take samples of this kind and make decisions well in advance of their actual effect.
We should be able to find out what industry is thinking with regard to the purchase of plant and machinery. We should not be left in the position of finding out what industry has done three months ago. We should find out what it is intending to do. These are all possibilities for sample statistics.
With regard to consumption, we should find out what is happening in selected stores. This is made use of in market research, but the most important use which the Government can make is what is going on in certain stores and to learn what people are buying and how their expenditure is increasing. This information is not now available.
It has been said that when driving the economy of this country one has to proceed by the feel through the seat of one's pants. I accept that there is a certain amount in this, but what we need most is to find out what is happening, and if I felt that there was somebody at the Treasury, or at the Board of Trade, who was telephoning industry daily to keep in touch with what is going on, I would be rather happier than I am at the present time, because one of the most important aspects that I see in the Treasury is its aloofness from what is really going on in the world today.
If we want real planned growth we must have information, because the key to growth is not only investment, but controlled investment. If we must subsidise, if we must use this fine screw of control, we need further to categorise the investment so that we can say that there are certain aspects of investment which are desirable—machine tools, computers, and so on—and that these should be subsidised, and this complete investment control can even out the production cycle in the machinery manufacturing industry.
Investment is the key to the growth of our economy, but it must be proper investment, not investment in Rolls Royces or less essential items, but in machine tools and in the articles that will precede growth.
The information that is available can also be a help in planning investment in the under-employed regions. This should have been done many years ago, but the Treasury and the Board of Trade did not understand industry sufficiently. I


hope that in the years ahead feelers will go out to industry, that real co-operation will be sought with industry, and that this planned growth between industry and Government will become a possibility.

9.20 p.m.

Captain Walter Elliot: I enjoyed the speech of the hon. Member for Ashton-under-Lyne (Mr. Sheldon). It is a pity that there were not more hon. Members present to hear it. I agree with him about the remoteness from industry of Government Departments such as the Board of Trade and the Treasury. I also agree with him about the need for better statistics, but I do not believe that Government Departments would ever be able to obtain accurate information quickly enough to make the decisions which need to be made by industry and business men. This, no doubt, is one of the differences between hon. Members on this side of the Committee and hon. Members opposite.
On one occasion the hon. Member seemed to move very close to what has been implied by other hon. Members opposite on previous occasions, namely —to put it crudely—the proposition that ball bearings are good but washing machines are bad. We must remember that however much we may admire the making of complicated machine tools the object of production is consumption. The most interesting remark made by the hon. Member was that we should judge the Budget by the priorities it gave to growth and investment; and later he added the increase in exports.
The Chancellor made a long speech rather quickly, and it was difficult to hoist in everything that he said. I detected very little in it which referred to growth and investment, or to exports. At the beginning the Chancellor said, refreshingly plainly, that the object of the Budget was to achieve a state of balance, and that the key point was to reduce the net outflow of long-term capital by £100 million and lower internal expenditure by £250 million.
I thought that he would lay stress on a strong £, obtained by means of increased exports. We can reach a state of stability at a very low level. That is ordinary Keynsian economics, but it is not very desirable. We want increased growth, and we must achieve this through

exports. The fundamental need is for the country to expand output relative to consumption, or, less satisfactorily—and this is what the Budget seems to tend towards —reduce consumption relative to output.
If we do not increase output sufficiently we will have to do one of three things. We shall have to reduce money incomes, or have a rise in the cost of living—which is much the same—or have rationing. I do not want to be controversial, but I must point out that in one place the Budget proposals came suspiciously close to rationing. I understand, although the Chancellor spoke very quickly, that the travel allowance is to be fixed at £250. If one wants more—again as I understand it—the reasons will be investigated. It can be argued that is not rationing, but it is approaching the rationing of travellers. The Chief Secretary to the Treasury would undoubtedly agree—

Mr. Maxwell: What the Chancellor said was not that he would investigate it but that he would require the traveller to justify his request for additional funds, and that is slightly different.

Captain Elliot: I think that is splitting hairs—it will be checked.
As I was saying, the Chief Secretary would agree that we do not want to raise the cost of living, but I have my doubts that the Chancellor will be successful in his efforts to avoid this. The Prime Minister has categorically rejected devaluation and it seems to me that the main purpose of the Budget is to achieve a reduction in money incomes. We have Income Tax at 8s. 3d.; revenue from light car licences and goods vehicle licences is to bring in £48½ million, and there will be £127 million from tobacco and alcohol. There is the petrol tax and we have increased contributions for National Insurance. On the face of it, there should be a reduction in money incomes but I am not certain that this will happen and I should be glad to be corrected from the Treasury Bench if I am wrong.
In the financial year 1964–65 94½ per cent. of the expenditure was covered from Revenue. For 1965–66 expenditure is estimated at £8,482 million and the total revenue at £8,862, giving a surplus of £380 million. We have of course still


to get the Supplementary Estimates. One was mentioned in the Defence White Paper, but we have not had the others. Lending by the Government is estimated at £1,228 million. If we subtract a surplus of £380 million, we are left with the amount needed to be raised by borrowing, which is £848 million or about 10 per cent. of the expenditure.
In 1964–65 the Budget covered 94½ per cent. of the expenditure from revenue. It appears that this Budget will cover only 90 per cent. of the expenditure from revenue. It seems to me that it will fail if its purpose is to reduce money incomes, if the figures I have produced are correct. There is over £800 million new money which will be created and go into the economic system.
In addition, I thought that the action of reducing money incomes, or increasing prices in order to release resources, had become discredited because big organisations will not accept it. If prices go up—as they will go up, as a result of this Budget they claim that their incomes should go up also. I am very doubtful whether the attempt to reduce money incomes will succeed. If money incomes are not decreased, we must get a production increase. I should like to ask the Government how they think this is helped by the Budget. In November, we had the 6d. on petrol. We are getting the expense of the training levies in industry, and shortly no doubt also on the shoulders of industry will be the redundancy payments. It will all add to their expenses. Income Tax will go up there is an increase in licence fees on cars and goods vehicles, and there are also the increased National Insurance contributions. These are all great expenses which are being put on the shoulders of industry.
Where, in all this, are the incentives to production? I made a note of two points which the Chancellor mentioned—the rebate, which we have had already, and the better credit facilities. Those two means of assisting production were brought in earlier. The Chancellor today said at the same time that he wants a 5 per cent. increase in the total of exports. I cannot see with these additional burdens put on the back of industry, how he will get that with two small

concessions of the rebate and the better credit
facilities.
I said at the beginning what other hon. Members have echoed in otherwords,that our object should be to expand output relative to consumption. I do not believe that this Budget will lead to a reduction in money incomes, for the reasons which I have given. There are no incentives to increased production.

Mr. Joel Barnett: I have been trying to follow the hon. and gallant Member's arguments, but he seems to contradict himself. He seemed to be indicating that the Budget was not taking enough money out, and went on to say that we are putting a burden on industry. If I follow him correctly, he wants to see more taken out without it being a burden on industry. Where would he take it out?

Captain Elliot: That was not my argument. I am sorry if I did not make it clear. I was arguing that the Chancellor's approach was to reduce money incomes, and I tried to extend that argument to show that I do not think that he will be successful. The nub of my argument is that he does not have the right approach. The right approach is to expand production relative to our consumption, not to cut consumption relative to our production. I hope that that makes the matter clearer. There is no incentive in the Budget to increase production. I believe that prices will go up as a result of it and that that will drive up incomes.
The Budget fails on all these counts and I fear that over the months the £ will weaken. I agree with my hon. Friend the Member for Ilford, South (Mr. Cooper) that when the Conservatives left office we did not leave a mess. Indeed, there was an illuminating sentence in last year's Economic Report, which stated:
The only strongly expanding element in home demand during this period was fixed investment, which was rising in all the main sectors private, industry and trade, the nationalised industries, the public services, and housing.
That is a valuable legacy for any incoming Government to have. In 1964 industrial production went up by 6 per cent., exports were rising and confidence was high, a vital factor. The trouble


today is that confidence has gone and I do not believe that the Budget will restore it.

9.36 p.m.

Mr. Robert Maxwell: The hon. Member for Ilford, South (Mr. Cooper)—who has unfortunately left the Chamber—made one of those speeches which might have been suitable for a Conservative Association meeting or as part of a seaside funny show. It is incredible that hon. Members opposite should make those sort of speeches in 1965. However, if that is their pleasure, who is to say otherwise?
The hon. Gentleman also said that the TSR2 was the best aircraft in the world. I am sorry that he is not in his place, because he might have told us by what criteria the aircraft is judged If it is the best in the world, why could not we get anybody to buy it? The fact of the matter simply is that this country has begin saddled with the TSR2 to satisfy the stupid desire of the former Administration to maintain a so-called independent nuclear deterrent.
The claim that the British aircraft industry has become bloated, from 150,000 men at the height of Korean rearmament to close on 300,000 men by last year, and that the industry has become like a leach on the taxpayer, costing us hundreds of millions of £s, is not the fault of the aircraft manufacturers but entirely of the former Administration and their military advisers in defining rôles and responsibilities for Her Majesty's Armed Forces which we were incapable of fulfilling or discharging either industrially or on the weapons systems, and nor did we have the resources for them.
For these reasons, I welcome the cancellation of the TSR2. The aircraft should never have been ordered, and we have only ourselves to blame for getting into this position. It has arisen because of the incredible belief of the former Prime Minister and his predecessor that we needed to maintain a so-called independent nuclear deterrent.
I leave that subject and come to the Budget. I believe that its proposals can best be judged by considering whether the Chancellor has really succeeded in dealing with the chronic structural weakness of the economy by the following four parameters. The first

is: will his Budget help to provide a good climate in order to get labour and management and the owners of industry to accept and loyally to practise the national incomes policy. I believe that all fair-minded people, after they have digested the Chancellor's pronouncement —which he made so masterfully and brilliantly, there can be no doubt about that—will conclude that his proposals have made a massive contribution to getting the national incomes policy and the National Board for Prices and Incomes accepted and functioning.
The second question is: will his proposals encourage our citizens and the capitalists of the country to use their funds for investment in the economy of the United Kingdom instead of, as hitherto, using the bulk of their funds to invest badly abroad. I think, again, that all fairminded people—and, what is much more important, our bankers and investors here—will conclude that my right hon. Friend has achieved one of his major purposes of encouraging the home capitalist to invest his resources in tools and techniques that we require to increase out competitiveness.
He has done this by calling the nation's attention to the fact that for far too long have we been encouraging—and, in fact, favouring—investment abroad, and that the time has come to switch our funds and resources here. Consequently, he has brought in fiscal incentives that require capitalists to think carefully whether they should send their money to America or Australia or invest it in this country—

Notice taken that 40 Members were not present;

Committee counted, and 40 Members being present—

9.43 p.m.

Mr. Maxwell: A further
criteria or parameter by which we ought to judge the
success or failure of my right hon. Friend's Budget is to ask ourselves whether his proposals are likely to encourage the re-equipment, modernisation and entrepreneurship in our country in order to give us a sharper cutting edge so that we can get out of our chronic balance-of-payments problems once and for all in a few years" time. Again, I believe that business men, bankers and ordinary people at home and abroad will


conclude that my right hon. Friend in his Budget has made a jolly good start to getting industry, and business men and Government to realise the importance and need to use our resources, energy and intelligence to re-equip ourselves with modern tools and techniques to face present-day competition. However, I am afraid that he will not get the kind of speedy results we as a country need at present, and I hope to make some suggestions on how we might improve on getting them by using tools that are to the hand of the Government to get British industry to re-equip itself faster and to encourage entrepreneurship.

Captain W. Elliot: The hon. Gentleman has said that the Chancellor of the Exchequer has taken certain action in his Budget which will encourage industry and business men to re-equip and invest. Would he give me one example of this?

Mr. Maxwell: The Corporation Tax, once it is examined—[Laughter.] Hon. Members may laugh, but I assure them that some of them may have long faces Mien industrialists have had the opportunity to work out what the Corporation Tax will do for them in business. They will discover that it is a tremendous incentive to re-equipment, to modernisation, to invest in trading, and to invest in sales. There is a whole string of other suggestions in the Budget with which I shall not bore the Committee. Hon. Members can read it tomorrow.
The last and perhaps the most important criterion by which we should judge the success or failure of the Budget is whether the proposals are such that they will genuinely bring about an immediate and rapid increase in the quantum of our exports. The Budget tries to do this, but I am afraid that my right hon. Friend will be disappointed, in that British industry has for so long lived with exhortation and palliatives, has for so long grown rich and fat on the home market, and has for so long heard about our need to export but has failed the nation, that the proposals in the Budget, as they stand at the moment, in spite of the export incentive, welcome though it is, will not be sufficient to help or compel British industry to achieve the kind of increase in exports we badly need.
I come to the suggestion to which I hope that my hon. Friend the Chief Secretary to the Treasury and my right hon. Friend the Chancellor of the Exchequer will give serious consideration and perhaps, which is even more important, adopt. I invite the Government to use the purchasing power that they have as a buyer of goods and services of about £8,000 million to modernise British industry and make it more competitive and export minded. During 1964 our economy was allowed to raise its output of goods and services by 6 per cent. Because British industry failed at the same time to increase its exports and maintain our share of world trade in order to pay for our increased imports, we are once again in a most severe balance of payments crisis. The Labour Government had to go cap in hand to foreign bankers and governments to obtain huge cash loans so as to enable us to meet our commercial obligations for the goods and services that we have imported or consumed abroad and to avoid the dire consequences of a further devaluation of the £.
Former Conservative Administrations, the F.B.I. and other industrial organisations have known for years that there are structural weaknesses in British industry and management and in our trade union set-up. We have been trying for years to put it right with palliatives, exhortations and occasional tinkerings. All these have largely failed and Britain's share of world trade has inexorably been driven down year after year after year.
Our rival trade competitors and creditors have apparently decided that we, the people of Britain, do not have the will or intelligence to get out of this ghastly economic position. Our present Government have already taken quite a number of steps and have announced some new ones in the Budget to try to correct these structural weaknesses. I am pessimistic whether these will suffice to make our country's economy capable of steady and sustained growth without inflation and without running into chronic balance-of-payments problems.
During our first six months in office, the steps taken so far have been only improved palliatives and some more and better exhortations, with the exception of the small export rebate. The new budgetary proposals will be too slow in


their action and will not achieve the urgently needed increase in our exports this year. To my mind, the Government have in their hands an instrument as a major purchaser of goods and services to the tune of about £8,000 million per annum. They must use this tool to compel British firms to modernise themselves. to use computers and the latest automatic machine tools and other techniques to increase their productivity, their competitiveness and their exports.
Were the Government to announce that they were really going to use this tool, it would not only impress our foreign creditors and competitors but, perhaps even more important, it would impress British industry, its owners, workers and managers. They would immediately realise that the Government are very serious indeed in wanting them to become more productive, more enterprising and more competitive. Once they know that the Government mean business, the British people will rise as they did at Dunkirk, and within five years or less we will cease to be "the sick man of Europe" and, instead of our reapplying to join the Common Market, it will be the Common Market countries who will be applying for us to join them.
As an example of how Her Majesty's Government are using at present the taxpayers" money to finance obsolescence, I should like to tell the Committee what happens when a local authority decides, for example, to purchase a new water purification plant or sewage plant, an item costing several thousands of £s. After the project has been examined in detail and has gone through all the procedures provided for by the Ministry of Housing and Local Government, after it has gone through the committees and gone out for tender to the manufacturers, the final choice of plant is then made by the sanitary engineer or some other qualified engineer of the local authority.
When he chooses a plant and talks to those who make it, he says, "Please show me where a similar water purification plant has been working successfully for 20 or 30 years without any trouble." It is no good a manufacturer saying, "We have done a considerable amount of research and development and have produced a lighter and better water purification plant", because the local authority's engineer is likely to say to the

manufacturer, "That is an excellent plant. It should be bought, but by the next local authority." He is interested only in having a plant which has been running trouble-free for 20 or 30 years elsewhere. The consequence is that no British manufacturer can invest money in research and development for new plant. He cannot sell it at home because people will not take plant which is an improvement on what already exists. In the result, we are at a disadvantage in the export market.
What can the Government do? With their block grants to local authorities, they can insist that local authorities do not place contracts with local firms for goods and services merely because they are ratepayers. Instead, local authorities should be invited to place their orders with the most scientific and research-minded and export-minded firms in the country which can offer the lowest prices.

Mr. George Y. Mackie: Is the hon. Gentleman recommending that British manufacturers should not produce new plant or that they should produce what the customer wants, which is something which has run trouble-free for 30 years?

Mr. Maxwell: Quite the contrary. As matters now stand, we, the taxpayers of this country, are subsidising the purchase by local authorities of obsolescent plant, and we are making it impossible for the British manufacturer to invest in modernisation. He cannot secure the orders because the local authority engineer will only say, "It is a jolly good idea, but let someone else buy it".
The Treasury is responsible for the principles upon which Government procurement is handled. How can the Government show some enterprise and vigour in these matters? As is well known, every Government Department which purchases goods and services maintains an approved list of suppliers containing the names of a number of reputable firms covering the Minister's various requirements. Tenders are invited only from firms on the list. The Government should review all these lists. They should notify firms that they will remain on a list only if they will, where appropriate, acquire British-made computers and the latest automated machine tools, making a definite contribution by increasing their exports and their productivity.
I recommend the setting up of an advisory committee composed of Government purchasing officers, business men and people from the universities and technical colleges with experience in business to advise each Department on whether particular firms should remain on an approved list or not. Local authorities placing orders for capital goods should be encouraged by the Government to place orders for the most modern plants available. If necessary, the higher price should be subsidised because, if a manufacturer has spent large sums of money to improve, for example, a water purification plant, he must recoup his investment in higher prices. Again, where the Government buy under bulk contract arrangements, they ought to insist that they will do so only if firms use the latest tools and techniques to improve productivity and increase their export performance.
The terms of reference of the Government's contracts co-ordinating committee, a committee composed of representatives of the Departments under the chairmanship of a senior Treasury official, should be amended to require Departments to use the Government's purchasing power to induce Government suppliers to modernise themselves and to increase their export performance. At present, this important executive committee is concerned only with eliminating interdepartmental competition for supplies and promoting economy by securing coordinated purchasing wherever practicable. This co-ordinating committee has three very valuable sub-committees, all of which could make an immense contribution to using the Government"s power as a buyer to help our country get out of its economic rut. The major document that the Treasury would need to amend to give effect to this policy is its Standard Conditions of Contract——

It being Ten o'clock, The CHAIRMAN left the Chair to report Progress and ask leave to sit again.

Report of Resolutions to be received Tomorrow.

Committee also report Progress; to sit again Tomorrow.

RENT [MONEY]

Resolution reported,
That, for the purposes of any Act of the present Session to restore the right to retain possession of certain dwellings and to make further provision with respect to security of tenure, rents and premiums, it is expedient to authorise—

(a) the payment out of moneys provided by Parliament of salaries or other remuneration and of allowances to or in respect of persons appointed to determine or register fair rents and of expenses incurred by such persons or in providing office accommodation and clerical and other assistance for such persons, and of salaries and allowances to clerks and other officers and servants of any panel constituted under that Act;
(b) any increase attributable to that Act in the sums payable out of moneys provided by Parliament under any other enactment.

Resolution agreed to.

SAFETY AT SEA

Motion made, and Question proposed, That this House do now adjourn.—[Mr. O'Malley.]

10.1 p.m.

Mr. James Johnson: Tonight I speak of men who go down to the sea in ships. I come new to fishing debates. I wish to begin with a personal note which may evoke a sympathetic answer from the Minister. The Minister and I are both of mining stock. Coal mining is a dangerous occupation, as he well knows. It is a man's job.
Representing a constituency in Kingston upon Hull, I am in close contact with deep-sea fishermen, and this has given me deep admiration and a healthy respect for the men who venture out to high northern latitudes in fog, ice, snow and darkness to hunt for food for the nation. To lose one of these men is a saddening experience, but to lose the crews of the "Boston Pioneer" and the "Blue Crusader" is a tragedy. If so many men were lost in a pit disaster, it would mean banner headlines. It would, indeed, be a national tragedy. It is in this spirit that I address the House, for the sea is in this country's blood, and safety at sea is something in which the House is always keenly interested—alas, perhaps, more keenly interested when disasters occur.
I realise that the Minister may have had little time to get to grips with the subject in the past, because he has been so immersed in and has been working so hard in the shipbuilding industry. However, I should like to know whether he is satisfied with the position. He is a pocket dynamo of energy, and I shall gladly give him ample time later to tell us what he is doing in this matter.
It is generally known that the International Safety Convention signed in 1960 will come into force on 26th May. I should like to know from the Minister something about the practical effects of this convention. Can he tell us the main improvements in safety which will come about as a result of the convention? Are they merely measures to provide equipment to save people when a casualty occurs, or do they include measures to make the ships themselves safer? Action afterwards is obviously important in itself, but I hope that my hon. Friend can assure me that he is making continuous effort to avoid casualties in the future.
In this connection, what can my hon. Friend tell us about the use made of the testing tank at the National Physical Laboratory, Feltham? Is it used to study the behaviour of ships under adverse weather conditions or in states of loading which might lead to their loss? Is there a scientific approach to safety at sea? Are we merely learning by experience from the loss of life which occurs? Does my hon. Friend insist on buoyancy tests, either dynamic or static, for trawlers, and, if so, what is the length of vessel to which these tests are applied? It seems to me that most casualties occur in fishing vessels. Is the Minister honestly satisfied that these vessels are all that they ought to be? Does he feel that everything is being done to insist on the provision of safe and effective search and rescue methods and of life-saving equipment?
The hon. Lady the Member for Aberdeen, South (Lady Tweedsmuir) called attention last January to the fact that the owners of the "Blue Crusader" apparently did not know that the ship was lost until two weeks after it had foundered with the loss of all on board. She asked then that all ships should contact their shore base after a bad gale.

Are there sufficient shore bases? If so, have they adequate facilities? I hope that they have in order to avoid the queueing up of ships of either the middle or near water fleets wishing to make contact with the shore.
Some owners insist that the boats make contact with their sister vessels daily. I am assured by skippers that that is the best method, but maybe some are a little shy of doing so if they are among lucrative shoals of fish, when they do not wish to give away their positions.
What is the Minister doing about radio telephony? I understand that the Department issued a notice to owners, masters and officers of merchant ships, yachts and fishing vessels dealing with the question of radio telephony distress procedure. The international Convention of 1960 requires that a card of instructions about these distress signals must be displayed on the bulkhead facing the radio telephone operator. I understand that this will be compulsory for all passenger and cargo vessels above 300 tons and for all fishing vessels above 140 ft. in length. But this would leave out many fishing vessels which are less than 140 ft. in length.
What is the Minister doing about these smaller vessels which, of course, often suffer more damage in gales? Apart from merchant ships and fishing vessels, every summer we read in our newspapers of loss of life and casualties in yachts and other vessels of this nature. The enjoyment of boating has increased in our affluent society over the last 13 years and will increase much more in the next 13 years of affluence under a Labour Government. Is the Minister doing anything to make this form of recreation safer?
I am no killjoy and I have no desire to have any test for the safety of these vessels, but the Minister was questioned some time ago by hon. Members about a new specification for life jackets. May we have an assurance that there will be soon a general improvement in the effectiveness of this very personal piece of life saving equipment? I hope that these jackets are both bigger and better and consequently more efficient.
I know that British Governments of whatever party have always placed considerable faith in international co-operation on safety at sea. We have played


a leading part in that co-operation. Coordination has now been taken over by the Inter-Governmental Maritime Consultative Organisation, generally known as I.M.C.O. Is my hon. Friend satisfied with the work being done by I.M.C.O.?
Does my hon. Friend find that the existence of such an organisation assists him in providing the best possible safety measures for British ships? Is there a possibility that perhaps it is impeding the Government and is leading to acceptance of the lowest common denominator? After the "Lakonia" disaster I was told by some people who are more versed in sailing matters than I that our standards are not perhaps what those of some other nations are.
Incidentally, I understand that I.M.C.O. is the only United Nations agency in London, a fitting recognition of our maritime history and the acceptance by other nations of the lead which we have given in the past.
I hope that in the time I have allowed him my hon. Friend will be able to give full and adequate answers to some of the questions I have posed, and I hope that he can give us some good news, for nothing is more important than that we should safeguard the lives of the intrepid men who go down to the sea in ships.

10.10 p.m.

The Minister of State, Board of Trade (Mr. Roy Mason): We have been discussing saving money all day, but now at this late hour we are discussing something much more important—the saving of life, and particularly the saving of life at sea. I am grateful to my hon. Friend the Member for Kingston upon Hull, West (Mr. James Johnson) for giving me the opportunity to say what is being done about this most important subject. Incidentally, the debate is most opportune, because at this moment there is much to say about it.
I treat with the utmost concern my responsibility to make sea travel as safe as possible for members of the public and for the seafarers who earn their livelihood from the sea. I am mindful of the responsibilities which Parliament has placed on successive Ministers in Merchant Shipping Acts going back as far as 1894 and even earlier, and I am also mindful of and grateful for the

essential contribution to our national life which is made by the officers and men of the Merchant Navy.
I should like first to deal with the subject of international co-operation. We place great store on international cooperation in achieving safety measures in ships, and for many years we have been leaders in promoting it. Now that the Inter-Governmental Maritime Consultative Organisation, known to every one by the initials I.M.C.O., has come into being, we are no less active in taking a leading part in this work. To answer my hon. Friend's specific question, almost the last he asked, I would certainly say that the work of I.M.C.O. is most valuable in providing a forum for discussion among international experts.
Some may say, and my hon. Friend even implied, that there is a risk that a universally accepted standard may be low, but, should it be necessary, we are not prohibited from achieving higher standards than those set by international conventions. However, in an international business like shipping it is best for the owners, crew and travelling public alike that there should be common standards of safety to which all nations will adhere, and it is that for which we continuously work. As my hon. Friend knows, the new international safety Convention comes into force on 26th May and Parliamentary approval to its adoption was given in the Merchant Shipping Act, 1964.
I shall shortly be making many new regulations which will apply the detailed provisions of the Convention to British ships, and these regulations will be laid before the House in the usual way. The regulations have been drafted in full consultation with shipowners, shipbuilders, the seafarers' unions and other interested organisations, and I believe that they will command a wide measure of acceptance. I am glad of this opportunity to thank all those who have helped us in our task.
In the short time available to me, I can answer my hon. Friend's questions only by giving a few examples of the new measures to be introduced. One major step forward is that all cargo ships over 500 tons and trading internationally will, in addition to the survey which they have had to undergo in the past,


now undergo periodic surveys of the hull and
machinery.
Another important change is the introduction of inflatable life rafts on both passenger and cargo ships in addition generally to the lifeboats which they already have. The United Kingdom has "peen the pioneer of inflatable life rafts and it was our initiative at the interiational conference which led to their being accepted by other nations. I relieve that this additional above-water support in the event of a casualty is a great step forward.
Another important advance in safety is the application of the radio provisions of the convention to cargo ships between 300 and 500 tons which make international voyages. This will mean that a considerable number of additional ships will participate in the communications organisation which is available in times of distress.
I might also mention another international Instrument which was drawn up at the time of the 1960 Safety Conference, namely, the revised international regulations for preventing collisions at sea. These Regulations will come into force on 1st September next, and one of the principal features is recognition of the importance of the proper use of radar by vessels navigating in restricted visibility. As regards the structure of the ship itself, the main step forward is added structural fire protection, but the Conference also made a number of recommendations that other aspects of ship construction should be studied. This is being done by a working group of I.M.C.O. in which we are taking a leading part.
Apart from the implementation of the 1960 Safety Convention, we are heavily engaged in the preparatory work for an international conference in 1966 which has been called by I.M.C.O. to revise the International Load Line Convention. This coming conference will take into account the changes in modern ship design and construction and will set the pattern for the future. The assignment of load line for determining the draught to which a ship can be safely loaded is something to which this country has made a great contribution in the past and, as all hon. Members know, it was pioneered with the Plimsoll line. I am confident that

we shall play no less a part in the coming international conference.
One of the matters which my hon. Friend did not specifically mention but which is of great importance is that of the carriage of dangerous goods in ships. This is, of course, no new problem, but an increasing international trade in chemicals and other dangerous substances is providing an even larger share of the cargoes carried in ships and it is therefore becoming more important from day to day.
One of the working groups which have been set up by I.M.C.O. has this matter very actively in hand and it has been preparing a code governing the safe packing and stowage of dangerous chemicals in ships. For our part, we are revising our national Blue Book to take account of this new code, and I understand that a completely new Blue Book will be presented to the Board of Trade for approval some time later this year. The Blue Book consists of recommendations on which we base our regulations for safety at sea regarding dangerous cargoes—explosives, and so forth.
I.M.C.O. has recommended the adoption of United Nations labels for the carriage of dangerous goods by sea and we intend on 26th May to give effect to this recommendation in the hope that these labels will, before long, be adopted for all forms of transport with the consequential benefit to our exporters.
Members question whether study of safety measures is carried out continuously or whether we merely galvanise ourselves into activity when there is a casualty. The promotion of safety is a continuous process. Apart from very extensive studies by I.M.C.O., my Department, through its corps of surveyors, has a continuing responsibility for ensuring that ships, and in particular passenger ships, are built and maintained to the highest standards. The professional staff of the Department serve on all appropriate domestic and international committees and are in day to day touch with British shipowners and shipbuilders. On policy matters, we have a long-standing tradition of close working with the Chamber of Shipping, the Shipbuilding Conference, the seafarers" unions and Lloyds Register of Shipping. I can truly say that safety is very much a national concern.
Perhaps at this stage I might take the opportunity of paying tribute to the members of the Board's Marine Survey Service, who carry heavy responsibilities and whose work unquestionably influences the high reputation for safety which British ships hold in the eyes of the world.
My hon. Friend asked what use is made of the testing tank at the National Physical Laboratory. This tank is primarily of service to the shipping industry in determining the most efficient hull form and propeller design. The use of the tank for the determination of safety standards is of more recent development, but it is beginning to play a useful part in this field. For example, trawler forms have been tested with a view to developing a hull which will limit the amount of spray coming on board. This is important for trawlers in order to reduce the possibility of ice accumulating on the rigging and deck with consequent loss of stability and possible loss of the ship. Also, stern trawler designs have been tested in waves to ensure that there is no risk of swamping from following seas. Moreover, modern types of high-speed craft such as hydrofoils are also run in model form at the tank to determine their behaviour under sea conditions to ensure that they will maintain stability in service.
My hon. Friend drew particular attention to fishing vessels. I appreciate his concern. He is chairman of the Fisheries Committee on the Government side of the House and he represents a constituency from whence the trawlers travel out to the middle and distant waters. They do, indeed, present special problems of safety and I should like to pay tribute once again to the courage and endurance of those who pursue this hard and often dangerous occupation.
I have time to mention only three of the things which are being done to further the safety of fishing vessels and their crews. First, stability. I.M.C.O. has set up working groups to study the problems of stability generally and a separate group of experts will devote its time solely to fishing vessels. My Department is playing a full part in this work.
Secondly, the new regulations, which have been framed in full consultation with the fishing industry and the unions,

will contain new or improved life-saving, fire-fighting and radio provisions for fishing vessels. For example, fishing vessels over 40 ft. in length will be required to carry a life raft for all on board and those over 55 ft. in length will have to carry sufficient for twice the number of those on board. Vessels over 60 ft. in length will also have to carry portable radio sets which, in the event of a casualty, can be taken into the life rafts or boats. I believe that these new requirements are a big step forward in providing fishermen with a means of communication and of providing homing assistance to rescue ships or aircraft. The larger fishing vessels will additionally be required to have fixed radio installation and to maintain a listening watch on the distress frequencies.
Thirdly, like hon. Members I have been disturbed at the loss of the "Blue Crusader" and then of the "Boston Pionair", both of which were seemingly lost without trace. These were the first two serious casualties to British ships which occurred after I took office. As I told the House at the time, one of the aspects of the "Blue Crusader" which disturbed me most was that the ship was last heard of on 13th January but that it was nearly a fortnight later when the presumed loss was reported and an air and sea search could be started.
I have been giving considerable thought to whether the existing arrangements for reporting positions of fishing vessels by radio could be improved. I have had a series of meetings on this subject and I shall be writing very shortly about this to the organisations which represent the owners and crews of fishing vessels. It may be necessary, in conjunction with the G.P.O., to consider in more detail the question of communications at sea to ascertain whether and to what extent this can be developed.
My hon. Friend also asked about the new specification for lifejackets. The International Safety Convention laid down certain basic requirements and we have carried out, with the co-operation of the manufacturers, a considerable number of tests with different prototype jackets. The whole problem of design has been studied by the Board's officers in conjunction with representatives of the shipping industry and of the seafarers" unions and others. I might say at this stage that we are particularly grateful to


Professor Pask, of Newcastle University, for all the help which he has given us in our researches. The specification for the new lifejacket is now agreed and will be incorporated in the statutory rules shortly to be laid before the House. I myself intend to try out the new jacket shortly so that I may have first-hand knowledge of the comfort, buoyancy and, above all, the improved safety standard between the new and the old.
It is easy to say what a lifejacket should do but not so easy to achieve it with a garment of practical size and type. It must be borne in mind that a lifejacket is the last line of defence. The first objective must be to make the ship itself safe, and the second to provide out-of-water support by way of lifeboats and liferafts. Our new requirements will improve both of these, and it should be our hope that lifejackets will nat have to be used. Nevertheless, we believe that the new jacket will prove itself a considerable advance on the past.
Now I should like to turn to the question of yachts and pleasure vessels. This is a difficult question because of the numbers and different types of craft involved, and I cannot go into this very fully tonight. At present statutory requirements for the carriage of life-saving and fire-fighting equipment are confined to vessels of 15 tons burden and over. In the statutory rules to which I have referred we shall bring the requirements up to date, and at the same time change the limit to 40 ft. in length rather than the present tonnage basis as this will be much more convenient.
But I am considering whether I ought to make rules for vessels down to, say, 20 ft. in length, and my Department is in touch with the yachting associations and other interested organisations about this. We are to have discussions with all those concerned in the coming months, and in the light of these I shall decide whether it would be appropriate to make additional regulations.
In conclusion, I should like to say a few words more about I.M.C.O. to which, inevitably, I have referred a number of times this evening. The United Kingdom took the initiative in calling the first three international Conferences on Safety of Life at Sea. The first, which met in the shadow of the loss of the

"Titanic", met in London in 1914 and though, because of the First World War, its recommendations were not adopted internationally, it did result in the setting up of the North Atlantic Ice Patrol.
The second International Conference met in London in 1929 and drew up a convention which governed international standards before the Second World War. In 1948 we held the third International Conference and brought the 1929 standards up to date, especially in regard to life-saving and fire-fighting equipment on cargo ships. In 1958 I.M.C.O. came into being, and the responsibility to call a further International Conference in 1960 therefore fell to that particular international body.
I believe that the international cooperation which has been brought about by the Conferences has been of the greatest value in promoting safety of life at sea, and I am quite confident that I.M.C.O. is carrying, and will continue to carry, the torch that was lit by this country. I am also taking a close personal interest in safety at sea, and I feel greatly satisfied that tonight I have been able to announce some of the improvements upon the existing safety measures.

10.28 p.m.

Mr. Eric Ogden: This is the first time in the life of this Parliament that Merchant Navy affairs have been debated at any length. They have been mentioned, and reported on, in statements, and I should like to thank my hon. Friends for their initiative in this matter.
Equally, it is appropriate that three ex-miners on this side of the House who are debating the Merchant Navy should be joined by the hon. and gallant Member for Winchester (Rear-Admiral Morgan Giles) who, although he was a little late, perhaps because he was held up in another place, came along to save the honour of his side of the House. I contrast this interest in the Merchant Navy with the vast assortment of brass that came along to debate the Royal Navy, and I hope that it will be possible for my hon. Friend the Minister of State to persuade his colleagues in the Government to give us one day, or at least part of one day, to debate in full the affairs of the Merchant Navy.
As my hon. Friend knows, my constituency is in Liverpool, and I am


probably the only ex-Merchant Navy man in the House. In the past we have concentrated a great deal on the affairs of the Royal Navy—which, after all, is fairly well equipped to look after itself—but we have not paid enough attention to the Merchant Navy. I repeat that I hope my hon. Friend will ask his colleagues to give us time to debate the affairs of the Merchant Navy, and I hope that he will concentrate on research and development contracts for safety of life at sea. This can be arranged through the various organisations and industries concerned, as is done in the aircraft industry where research and development contracts are placed with various firms. If this can be done for safety of life at sea, it will be very welcome.

10.30 p.m.

Rear-Admiral Morgan Giles: I thank the hon. Member for Liverpool, West Derby (Mr. Ogden) for the welcome he gave me. I am sure that with his Merchant Navy background he will agree that it is very important for the Royal Navy and the Merchant

Navy to be together in their thinking in peace time, as we know they have been in two world wars.

Mr. Mason: I thank my hon. Friend for his intervention. He must recognise that, for the first time, we have a Minister for Shipping who is concerned with shipping matters. I take note of what my hon. Friend said. I have some sympathy with his reasons for wanting Parliamentary time to discuss shipping matters. This may mean pressing the Leader of the House for a little crack in all the legislation that we are trying to introduce.
With regard to research and development contracts, a lot of work is being done with the British Shipping Research Association and the shipping division—

The Question having been proposed after Ten o'clock and the debate having continued for half an hour, Mr. DEPUTY-SPEAKER adjourned the House without Question put, pursuant to the Standing Order.

Adjourned at twenty-nine minutes to Eleven o'clock.